Who’s Buying the Rough?

Editorial

May 8, 2015 5:00 AM By Avi Krawitz

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RAPAPORT... Much has been said about unsustainable rough diamond prices in the past year. The lack of profitability in the diamond manufacturing sector has caused manufacturers to significantly scale down their operations and rough purchases in the past six months.

Indeed, in an article published this week, Martin Rapaport, chairman of the Rapaport Group, urged the trade to prioritize the purchase of polished diamonds over rough. Rapaport called on the banks to stop financing unprofitable diamond manufacturing until polished prices rebound and profitability returns.

Still, manufacturing remains at the core of the diamond industry, employing tens of thousands of workers and providing sustenance to possibly millions of their dependents. In the long run, manufacturers require profitable rough supply to ensure continuity in their operations.

Many of the larger manufacturers argue that securing consistent long-term supply is the key to gaining that continuity. The guarantee of consistent rough supply enables manufacturers to plan their production and assure polished supply to their jewelry wholesale and retail clients who often run programs with specific needs.

Consequently, a significant proportion of rough diamond production is sold to the market via long-term contracts.

Not all diamond mining companies are able to sell their production in such a manner. Most junior and mid-size miners sell via spot auctions or tenders, whereby buyers compete for rough in a bidding process. Some also have off-take agreements with buyers who are offered first selection of the mining company’s supply at a pre-negotiated price.

Only a handful of the larger mining companies have the scale of production that enables them to guarantee a scheduled, consistent supply of rough to a set group of clients. Therefore, it’s worth noting who the major buyers of rough are in the market, who is selling to them and how.

De Beers, ALROSA, Rio Tinto and Dominion Diamond Corp., which together account for about two-thirds of global production by volume, each recently penned new long-term supply contracts with their respective clients.

De Beers selected 85 clients known as ‘sightholders’ to receive rough during the new three-year contract period that began on April 1. The company sells approximately 90 percent of its supply to sightholders on a schedule of 10 sights per year, and the remainder are mainly sold via auction sales.

Of the total number of sightholders, 81 were selected as part of De Beers Global Sightholder Sales (GSS) – four of which are for industrial diamond supply. Twenty companies receive beneficiation supply in Botswana, eight in South Africa and 11 in Namibia. A spokesperson for De Beers explained that the 11 sightholders in Namibia remained unchanged this year while the company is still negotiating a new sales agreement with the government.

Four companies were awarded accredited buyer status for GSS and there is one accredited buyer for De Beers South Africa supply. An accredited buyer is a new category of De Beers client, giving those selected companies the opportunity to purchase rough from De Beers on an ad-hoc basis, depending on the availability of ex-plan, which is supply that is in excess of sightholders’ annual applications. Three of the accredited buyers have a sight in other beneficiation areas, while two solely have accredited buyer status.

De Beers was scheduled to update its website with the full list of sightholders and accredited buyers this week, coinciding with the first sight of the new contract period. The list revealed that 33 sightholders are based in India; 18 in Belgium; 12 in Israel; nine in the U.S.; four in Hong Kong; two each in the United Arab Emirates (UAE) and Switzerland; and one in Canada, Japan, Mauritius, Russia and the U.K. respectively; according to Rapaport News records.

There’s a similar spread between the major manufacturing and rough trading centers among the so-called ‘ALROSA Alliance’ customers. ALROSA sells about 70 percent of its production through its long-term contracts and the remainder via spot and special auction sales. Among the 47 ALROSA alliance clients listed on the company’s website, 15 are based in Belgium, 14 in India, eight are in Russia, four in Israel and three in Hong Kong. There is also one each from Belarus, Japan and the U.S.

Some 23 companies have supply contracts with both ALROSA and De Beers, according to Rapaport News records. Three of those also have contracts as part of Rio Tinto’s ‘Select Diamantaire,’ program, while five others are also ‘Dominion Preferred Purchases.’ Three companies have long-term supply contracts with De Beers, ALROSA, Rio Tinto as well as Dominion.

Rio Tinto has listed 17 select diamantaires on its website that have access to approximately 70 percent of Rio Tinto’s rough supply. The remainder is sold through tenders and special invitation sales for rough larger than 10.8 carats. Dominion sells all of its rough to the 33 preferred purchasers listed on its website.

In total, 127 individual companies have secured long-term supply contracts from at least one of the four suppliers – including the two which are solely De Beers accredited buyers. The comprehensive list includes companies which are purely polished manufacturers or rough dealers, and some that have downstream activities that extend into jewelry manufacturing, wholesale and retail.

In fact, an increasing number of the major jewelry retailers are appearing on such lists, having raised their rough procurement and diamond manufacturing operations in recent years. Signet Jewelers, Tiffany & Co. (Laurelton), Chow Tai Fook, Chow Sang Sang, Luk Fook and Gitanjali each gained at least one De Beers sight this year.

This column has argued before that these jewelry companies can better afford higher rough prices than their pure-play manufacturing counterparts. They garner higher margins from the jewelry they sell than manufacturers do for their polished.

However, the market is as strong as its weakest link. And manufacturers have signaled in the past few months that they’re not prepared to take continuous losses from their rough supply.

In particular, they’re referring to the high prices of contracted supply. Whereas the bids at auction and tender sales reflect the price that buyers are willing to pay for the goods, contracted supply tends to sell at a premium for the promise of consistency.

Consequently, the ability of these 127 companies to buy rough and sell their polished sets a benchmark for determining the sustainability of the diamond industry.

Having penned long-term rough supply agreements with the major mining companies in 2015, these companies must surely believe that the guarantee of rough supply should bring with it reasonable profits for the core of the diamond industry. Perhaps in the long term it will.

Here’s a list of companies which have supply contracts with De Beers – including Global Sightholder Sales (GSS) and beneficiation supply in Botswana, Namibia (NDTC) and South Africa – ALROSA, Rio Tinto, and Dominion Diamond Corp., as collected by Rapaport News: (A pdf version of the list can be found in the Rapaport Weekly Report).

	Company Name	Head Office	De Beers	ALROSA	Rio Tinto	Dominion

1	A.C. Diam	Belgium		ALROSA
2	A. Dalumi Diamonds	Israel	GSS, Botswana
3	Almod Diamonds	USA	GSS, NDTC
4	AMC	Belgium	GSS, S. Africa
5	Ankit Gems	India	GSS, NDTC
6	Arjav Diamonds	Belgium	GSS, Botswana
7	Arslanian Fréres	Belgium		ALROSA
8	Asian Star	India	GSS	ALROSA		Dominion
9	Aspeco (K Girdharlal)	Belgium		ALROSA
10	Bhavani Gems	India	GSS
11	Blue Star Diamonds	India	GSS, Botswana			Dominion
12	Brilliant Gems	Belgium		ALROSA
13	Brilliant Trading Company (1974)	Hong Kong		ALROSA
14	Bronner Trading Company	Belgium		ALROSA
15	Choron Diamonds	Belgium	Accredited Buyer (GSS)
16	Chow Sang Sang Jewellery Company	Hong Kong	GSS			Dominion
17	Chow Tai Fook Jewellery Co.	Hong Kong	GSS, Botswana, S. Africa	ALROSA	Rio Tinto
18	Classic Diam	Belgium				Dominion
19	Comdragmetall of RS(Y)	Russia		ALROSA
20	Corona Jewellery Company	Canada				Dominion
21	Crossworks Manufacturing	Canada	GSS, NDTC		Rio Tinto
22	D Navinchandra Gems	Belgium	GSS			Dominion
23	Dali Diamond Co.	Belgium	GSS	ALROSA
24	DDK	Russia		ALROSA
25	De Toledo Diamonds	Israel	GSS
26	Dharmanandan Diamonds	India	GSS
27	Diacore International	Switzerland	GSS, Botswana, NDTC, S. Africa
28	Diajewel	Belgium		ALROSA		Dominion
29	Diambel	Belgium	GSS		Rio Tinto
30	Diamond India	India		ALROSA
31	Diamtrade	Belgium				Dominion
32	Dianco	Belgium	GSS		Rio Tinto
33	Diarough	Belgium	GSS		Rio Tinto
34	Diarush DMCC	UAE	GSS
35	Dilipkumar V. Lakhi	India	GSS	ALROSA		Dominion
36	Dimexon International Holding	India	GSS	ALROSA	Rio Tinto
37	E. Schreiber	USA			Rio Tinto
38	Eloquence Corporation	USA	Industrial
39	EPL Diamond	Russia		ALROSA
40	ESPEKA	Belgium		ALROSA
41	Eurostar Diamonds International	Belgium	GSS, Botswana
42	Exelco	Belgium	GSS, Botswana
43	EZ Diamonds	Israel	GSS
44	Fruchter Gad Diamonds	Israel	GSS
45	G.G. Export	India				Dominion
46	Gemmata	Belgium			Rio Tinto
47	Gitanjali	India	GSS
48	Gold Star Diamond	India	GSS
49	Gomelskoe PO Kristall	Belarus		ALROSA
50	H. Dipak & Co.	India	GSS
51	Hardstone Processing	Namibia	NDTC
52	Hari Krishna Exports	India	GSS	ALROSA	Rio Tinto	Dominion
53	Hasenfeld-Stein	USA	GSS
54	Henri Polak Diamond Corp.	USA	Industrial
55	HVK International	India	GSS			Dominion
56	I.D.R.P.	Belgium		ALROSA		Dominion
57	IDH Diamonds	Belgium			Rio Tinto
58	IGC Group	Belgium	GSS, Botswana
59	Interjewel	India			Rio Tinto	Dominion
60	Jasani	India	GSS	ALROSA
61	Jewelex India	India	GSS
62	Julius Klein Diamonds	USA	GSS, Botswana, NDTC, S. Africa
63	K Girdharlal International	India	GSS
64	K P Sanghvi & Sons	India	GSS	ALROSA	Rio Tinto
65	Kapu Gems	India				Dominion
66	Karp Impex	India	GSS	ALROSA
67	KGK Diamonds (I)	India	GSS, Botswana, S. Africa	ALROSA
68	Kiran Gems	India	GSS	ALROSA		Dominion
69	Komal Gems (Laxmi)	Belgium				Dominion
70	Kristall Production Corporation	Russia	GSS	ALROSA
71	Kristall-99	Russia		ALROSA
72	L&N Diamonds	Israel		ALROSA	Rio Tinto
73	L.L.D. Diamonds	Israel		ALROSA
74	Laurelton Diamonds	Belgium	GSS, Botswana, NDTC	ALROSA	Rio Tinto	Dominion
75	Laxmi Diamond	India	GSS
76	Lazare Kaplan International	USA	Accredited Buyer (GSS), NDTC
77	Lazyrit-D	Russia		ALROSA
78	Leo Schachter & Company	Israel	GSS, Botswana
79	Lieber & Solow	USA	Industrial
80	Luk Fook	Hong Kong	GSS
81	M Suresh Company	India	GSS			Dominion
82	Mahendra Brothers Exports	India	GSS			Dominion
83	Mohit Diamonds	India	GSS
84	MOTIGANZ Diamond Group	Israel	Accredited Buyer (GSS), Botswana
85	Niru Diamonds Israel (1987)	Israel	GSS
86	Penford (Diamcore)	Israel		ALROSA
87	Pluczenik Diamond Company	Belgium	GSS, Botswana, NDTC	ALROSA
88	Pratham International DMCC	India				Dominion
89	Premier Diamond Alliance	USA	GSS
90	Richold	Switzerland	GSS
91	Rosy Blue (India)	India	GSS	ALROSA
92	Rosy Blue	Belgium	GSS			Dominion
93	Ruis Diamonds	Russia		ALROSA
94	S. Vinodkumar Diamonds	India	GSS
95	S.D. Diamond	USA		ALROSA
96	S.V. Gems	Belgium		ALROSA
97	Safdico International	Mauritius	GSS, Botswana, S. Africa
98	Sahar Atid Diamonds	Israel	GSS	ALROSA		Dominion
99	Sakha Diamond	Japan		ALROSA
100	Sauraj Diamonds	Belgium				Dominion
101	SBMH	Israel	Accredited Buyer (GSS)
102	Schachter and Namdar	Hong Kong	NDTC, Accredited Buyer (S. Africa)
103	Shairu Gems Diamonds	India	GSS
104	Sheetal Manufacturing Company	India	GSS	ALROSA	Rio Tinto	Dominion
105	Shree Ramkrishna Export	India	GSS	ALROSA		Dominion
106	Shrenuj & Company	India	GSS, Botswana, S. Africa
107	Signet Jewelers	USA	GSS, Botswana		Rio Tinto
108	Simoni Gems	Belgium				Dominion
109	Singh Diamonds	India				Dominion
110	Soradiam	Belgium				Dominion
111	Star Diamond Group (SDG)	Belgium	GSS	ALROSA
112	Star Rays	India	GSS			Dominion
113	Suashish Diamonds	India	GSS
114	Taché Company	Belgium	GSS, Botswana, S. Africa	ALROSA
115	Tasaki & Co.	Japan	GSS
116	Trau Bros	Belgium	GSS, Botswana, NDTC	ALROSA
117	Tunalgy	Russia		ALROSA
118	V D Global	India	GSS
119	Van Moppes (Tache)	UK	Industrial
120	Venus Jewel	India	GSS	ALROSA	Rio Tinto	Dominion
121	Vijay Diamond (FZE)	UAE	GSS
122	Vishindas Holaram (Lakhi)	USA				Dominion
123	Wing Hang Diamond Co.	Hong Kong	GSS	ALROSA
124	Yaelstar	Belgium	GSS			Dominion
125	YDI - Yoshfe Diamonds International	Israel	GSS
126	Yerushalmi Brothers Diamonds	Israel	GSS, Botswana
127	Yosi Glick Diamonds (2003)	Israel	GSS

The writer can be contacted at avi@diamonds.net.

Follow Avi on Twitter: @AviKrawitz and on LinkedIn.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.diamonds.net/weeklyreport/ or contact your local Rapaport office.

Copyright © 2015 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.

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Tags: Alrosa, Avi Krawitz, Chow Tai Fook, De Beers, diamonds, Dominion, Jewelry, Rapaport, Rio Tinto, Signet, Tiffany