De Beers Raises Prices at $520M Sale

RAPAPORT… De Beers’ April sight closed with a value of $520 million
amid concerns among manufacturers that higher rough prices could affect profit
margins.

De Beers raised prices by 1% to 2% from the previous sale
for larger size categories, sightholders told Rapaport News this week. In
addition, De Beers adjusted the way it arranged stones into assortments that it
sells, resulting in most of the boxes of goods increasing in price, clients
explained.

“It’s very difficult to see profit on the
boxes when you manufacture the goods,” a sightholder stated. 

Cutters have little choice but to accept the high prices, as
the alternative is to jeopardize their sightholder status, rough broker Dudu
Harari said in a report on the sight.

“Since they stand to lose money manufacturing, many
sightholders prefer to trade their rough rather than dealing with [the] long
and expensive manufacturing and polishing sales process,” Harari noted.

Even so, dealers’ premiums — the margins they can make when
they trade rough on the secondary market — are also thin, making it hard for firms to make a profit, sources explained.

High polished inventory levels and low manufacturing margins
could push prices down, Harari predicted. Increased financial restrictions
following fraud allegations against Indian jewelers Nirav Modi and Mehul Choksi
could also result in a slowdown of the market, potentially forcing miners to
make their goods less expensive, he added.

In addition, rough prices often drop in May and June as
Indian cutting factories work at lower capacity during the summer vacation,
restricting demand, an anonymous sightholder explained.

“While the second quarter of the year is traditionally a seasonally slower period, we continued to see good rough-diamond demand in the third sales cycle of 2018, as diamond businesses have focused on restocking following healthy consumer demand for diamond jewelry in the US and China,” said De Beers CEO Bruce Cleaver.

Rough-diamond proceeds during the third sales cycle of the year were 8% lower than the previous cycle, and 11% lower than the equivalent period last year, De Beers said Tuesday. The figures included last week’s sight and other sales, such as auctions. 

The sight was the first of the new intention-to-offer (ITO)
period, which began on March 31 and lasts for a year.

Under the revised ITO arrangement, De Beers will supply a
significantly larger proportion of goods to its sightholders in Botswana as it
fulfils its contractual obligations to the country’s government, with which it
operates a program to support local manufacturing, sources told Rapaport
News. The miner will also make slightly more goods available to clients in
South Africa and Namibia under similar arrangements, known as beneficiation programs.

Total supply to companies in all three countries, as well as
to the international sightholders who make up the bulk of De Beers’ client
base, will increase overall in dollar terms, the sources explained.

De Beers sells about 90% of its rough diamonds across 10
contract sales per year, known as sights, in Gaborone, Botswana. At the start
of the ITO, De Beers provides each sightholder with a plan outlining the supply
of rough diamonds it intends to offer the client.

In other changes, De Beers will no longer take into account
clients’ auction purchases when determining how much supply to allocate
sightholders, a spokesperson for the miner said. Until now, companies that bought
diamonds at De Beers auctions could use such activity to demonstrate their
demand for goods, thereby increasing their chances of getting a higher
allocation at sights.