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De Beers June Sight Estimate at $540M

Weak Rupee Fuels Sightholder Caution

Jun 17, 2013 10:17 AM   By Avi Krawitz
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RAPAPORT... The De Beers June sight had an estimated value of $540 million and signaled cautious cutting center sentiment as the recent rupee depreciation has weighed on the Indian market and overall liquidity.

“We felt that sentiment had improved going into the sight following the JCK Las Vegas show,” said Nigel Simson, head of beneficiation at De Beers. “But then the rupee dropped at the start of the sight, which presented further liquidity challenges to sightholders.”

The rupee hit a record low of INR 58.98 against the dollar on Tuesday of sight week (June 11) before recovering slightly to trade at INR 57.9 this week, representing a decline of 6 percent from the beginning of the year. Investors continue to worry about the country’s widening current account deficit and the Reserve Bank of India today warned of an upward risk of inflation due to the depreciated currency.

While a weaker rupee is favorable for exporters, one India-based sightholder noted that the weak currency mainly affects diamond manufacturers of small goods as India remains the largest market for these diamonds. He added that jewelers are currently hedged against the weak rupee as they are sitting with existing inventory and can try to sell at a higher price whereas diamond manufacturers still have to buy their rough supply at the higher new rate. “When you buy the goods in dollars, it has become a lot more in rupee terms,” he added.

Feedback from the sight indicated that De Beers maintained stable prices on average in June with minor adjustments both up and down on certain goods.  Assortments were adjusted from the May sight, which included a larger proportion of higher quality Canadian goods, to a more regular mix of goods in June.

One sightholder said that in order to ease sightholder profitability concerns, he would like to see consistent prices and assortments from the mining company.

Most sight participants who spoke with Rapaport News suggested that there was a cautious mood at the sight as sightholders continue to struggle with profitability from their rough supply. On average, rough from primary sources continues to trade on the secondary market at around cost. Similarly, profit margins from manufacturing remain slim.

“No one is increasing manufacturing at the moment, and in fact, most manufacturers are looking to trade more polished because there are no margins in manufacturing,” one sightholder said. “There’s less rough availability and it’s become so expensive that people are downsizing. It’s frustrating and people are not interested anymore.”

Varda Shine, De Beers executive president of global sightholder sales, told Rapaport News recently that De Beers rough prices have increased by mid- to high-single digit percentages since the beginning of 2013. She added that certain categories of rough have seen double digit percentage growth so far this year.

According to Rapaport estimates, De Beers rough sales at its sights fell 6 percent year on year to $2.89 billion during the first half of 2013, consisting of the first five sights of the year.  Anglo American is scheduled to release its financial statements for the period on July 26.
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Tags: Avi Krawitz, De Beers, diamonds, Jewelry, Rapaport, Rupee, Sightholders
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