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De Beers Sightholders Reject Most Goods at $200M Sight
Jul 20, 2015 11:29 AM
By Ronen Shnidman
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RAPAPORT... The De Beers July sight closed with an estimated value of $200 million with the amount of goods left on the table estimated to have exceeded 65 percent of the initial sight value. De Beers reportedly kept overall diamond prices and assortment quality stable.
The size of this year’s July sight is the lowest amount for De Beers sixth sight of the year going at least as far back as the global financial crisis in 2009 according to Rapaport News estimates. Sightholder sentiment similarly reached a nadir not seen since the financial crisis at the turn of the previous decade.
Manufacturers stated that polishing rough diamonds at current rough and polished prices is unprofitable. Several sizable polished manufacturers told Rapaport News that the added value that sightholder status afforded their businesses no longer justified the level of losses they were incurring on De Beers boxes.
“The prices for De Beers boxes and rough diamonds sold by the other major miners have lost all touch with the reality in the market,” said an Israeli sightholder. He added that, on average, the prices for rough diamonds sold at tenders by small and medium-size mining companies were 15 percent to 20 percent cheaper than the rough sold at long-term contract sales by the major miners.
De Beers announced ahead of sight week that sightholders would be allowed to defer an extra 25 percent of their total allocation of goods. Sightholders are traditionally allowed to defer one box per rough category within a six-month period. As a result, the exact amount of goods refused at the July sight, as opposed to those deferred to a later sight, was unclear.
Earlier this year, De Beers allowed sightholders to defer an additional 25 percent of their allocations during the first two sights of 2015. Market observers have noted that the company has proven more willing to reduce sales volume than prices amid softness in the rough market since the second half of 2014. Rapaport News estimates that De Beers has lowered the prices for its rough diamonds an average of 7 percent since the beginning of the year.
Trading volume on the secondary market declined significantly in recent days due to a reduced supply of goods from De Beers sightholders and buyers with long-term contracts with other major miners. Most boxes offered on the secondary market were trading at or below list price with average credit terms between 90 and 120 days at press time.
“If sightholders who are obligated to take the boxes are refusing to buy them at the list price at the sight, why would diamantaires on the secondary market want to buy the same goods?” says Guy Harari, CEO of online rough broker Bluedax. Harari’s partner and brother, Dudu, estimated that diamantaires selling boxes on the secondary market would lose between 5 percent and 10 percent on the purchase price they paid on their rough when including the average discount off list prices and the cost of offering generous credit terms.
De Beers declined to comment on the sight due to a mandatory quiet period just ahead of Anglo American releasing its financial results for the first half of the year on July 24. Meanwhile, sightholders doubted that conditions in the rough diamond market will improve in the coming months -- without a significant price correction.
"To be honest, people are really fed up and everyone is looking after their own business now rather than worrying about keeping their name in good standing with De Beers,” said a sightholder based in India. “Even if De Beers reduces prices by 5 percent, I don't think it will be enough to prevent a high level of deferrals and refusals at the next sight."
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Tags:
De Beers, July sight, Ronen Shnidman, rough prices, sight
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