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De Beers Raises Prices at $520M Sale

Apr 17, 2018 4:37 AM   By Joshua Freedman
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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.
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Tags: Auctions, Botswana, Bruce Cleaver, De Beers, Dudu Harari, gaborone, India, intention to offer, ito, Joshua Freedman, manufacturers, Manufacturing, margins, Mehul Choksi, Namibia, premiums, profit margins, profits, rough, Rough Diamonds, rough sales, secondary market, sightholder, South Africa
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