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Indian Demand Weak at $475M De Beers Sale
New sightholder contract to run until 2020
Oct 17, 2018 4:13 AM
By Joshua Freedman
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RAPAPORT... Manufacturers were concerned about profitability at last week’s De Beers
sight, and expressed hope their new supply agreement with the miner would ease
the situation.
De Beers had proceeds of $475 million during the October sales cycle amid weak
demand for smaller rough diamonds, the company reported Tuesday. Sightholders described last
week’s sight as difficult, as they felt compelled to buy unprofitable goods to
maintain bank credit and secure future allocations from the miner.
“People
are buying boxes for various reasons, [including] to preserve bank lines,” a
broker who requested anonymity told Rapaport News. “De Beers recognizes
that demonstrated demand on its own is far from ideal.”
Supply
flexibility
De Beers will continue to base its allocations on purchases made in the
previous year – a policy known as “demonstrated demand” – during the next contract
period, which begins on April 1, 2019. But it will also include attempts to
improve flexibility of supply, David Johnson, De Beers’ senior manager for
media and commercial communications, told Rapaport News Monday.
The
miner recently allowed sightholders to defer supply on weaker categories, and
started letting them exchange unwanted boxes with each other in a process known
as ITO swaps, he said.
“We’ve tried to improve our understanding of different sightholders’ business
accounts so we can cocreate with them opportunities for improvement,” Johnson
explained. “We’ve introduced different mechanisms that allow distribution
efficiency to work better, and we’re going to consult with sightholders on how
we can develop those a little bit more in the next year and half or a bit
more.”
The
new agreement will run until the end of December 2020, marking a shift to a
calendar-year schedule, management said in a presentation during the sight in
Gaborone. The company extended the current three-year contract — which began in
2015 — for an additional year to March 2019 to allow sightholders more time to
meet its financial-compliance standards.
The
next contract will be available for current sightholders that follow those
rules and show the required demonstrated demand, Johnson added. It will not
accept applications from new customers, as it would for an entirely new
supplier agreement.
Rupee
slide impacts demand
A
recent drop in Indian demand for smaller goods has heightened the need among
manufacturers for more flexible supply.
De
Beers reduced its rough prices by an average of 1% at the October sight,
sources who spoke with Rapaport News estimated. Premiums also fell on
the secondary market, with boxes selling for about 2.3% above De Beers’ prices,
meaning many dealers struggled to make a profit after the various sight fees,
according to a report by Dudu Harari of brokerage firm Bluedax.
“The strengthening of the US dollar over the Indian rupee is also making it
difficult to sell polished in Asia and in the local Indian market,” Harari
added. “Price drops in the smaller, cheaper goods continue, and we believe
there will be a price correction at the source.”
The rupee depreciated 7% in the last three months to INR 73.5 to $1 on Thursday,
impacting demand for lower-value categories, De Beers CEO Bruce Cleaver
acknowledged. However, “we continue to see steady overall demand for De Beers
Group rough diamonds, reflecting ongoing consumer demand for diamond jewelry in
the US,” he added.
De Beers’ rough sales amounted to $4.41 billion over the first eight sights of
the year, in line with last year, according to Rapaport calculations.
Image: De Beers sight boxes. (De Beers)
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Tags:
Bruce Cleaver, currencies, David Johnson, De Beers, India, Joshua Freedman, Rough Diamonds, rough market, Rupee, Sightholders, Sights
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