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Dealer Mood Improves at $480M De Beers Sight

Company Hails Smooth Transition from London to Gaborone

Nov 18, 2013 11:50 AM   By Avi Krawitz
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RAPAPORT... The De Beers November sight closed with an estimated value of $480 million, a total that was slightly higher than presight estimates, as sightholders saw a bit more profitability in the goods on offer. The sight was the first full international sight to be held in Botswana after the company completed its relocation of sightholder sales from London.

De Beers lowered prices by around 3 percent to 5 percent, mainly on the small and commercial-quality boxes, which helped spur demand for ex-plan goods during sight week. Assortments also changed, resulting in higher values on certain boxes. Some sightholders opted to defer their allocations to December but then applied for additional goods that were not included in their initial applications (ex-plan)  when they saw the price adjustments. 

“There was a positive mood at the sight, which was a nice change from the past few months,” said an Israel-based sightholder. “But it was a small sight as many companies deferred their allocations to December. So we’re a bit worried about what will happen next month.”

An Antwerp-based sightholder felt that the positive mood was slightly exaggerated given that adjustments were relatively small. While the price declines provided some relief to manufacturers, they were nowhere near the kind of adjustment required to bring profitability to the sector, he added.

Sightholders also reported that rough goods from ALROSA continue to offer better value on the market. In addition, the Botswana state-owned Okavango Diamond Company, which currently sells 12 percent of De Beers Botswana production, saw slightly higher prices at its auction last week than the previous month. 

Still, sightholder sentiment overall was improved this month. One sightholder, who deals mainly in small goods, argued that demand increased due to the price adjustments and from shortage of rough across the dealer market in the past few weeks. Sightholders refused a significant portion of goods at the past two De Beers sights amid complaints that there was little profitability in their rough supply.

Given the relative scarcity, an India-based sightholder noted that trading on the secondary market improved in the past few weeks and that prices obtained by dealers increased slightly through the Diwali break. He explained that Indian factories are starting to resume operations after Diwali, while supply has been low in the past few months. “There is rough in the pipeline and I feel that the mining companies are holding a bit of inventory but there is a scarcity in the market,” he explained. “It’s not that anyone is closing their factories due to a shortage of goods but there’s no overflow.”  

Most of the major diamond mining companies recently reported an increase in production during the first nine months of the year. Anglo American, which owns 85 percent of De Beers, reported that De Beers production rose 11 percent year on year to 22.026 million carats during the period, while ALROSA’s production increased 6 percent to 27.052 million carats, and Rio Tinto’s production rose 17 percent to 11.529 million carats. 

David Johnson, head of midstream communications for De Beers, noted that the company maintains its stated forecast for production in line with last year and he stressed that the company is not holding back goods. Johnson added that demand has increased as manufacturers’ have depleted their inventory after Diwali, while there is also a bit more retail demand ahead of the Christmas shopping season.

Most sightholders who spoke with Rapaport News forecast improved market conditions during the remainder of the year as they work to fill orders for the season. They expect that the December sight will be larger given the current low availability of rough and since many have deferred their applications at recent sights.

“I expect a very strong couple of weeks now. There’s a bit of polished in the trading centers but not too much rough so I feel that’s going to create a momentum on its own,” a sightholder said. “And we’re all looking at what the U.S. will do in the next couple of weeks and are hopeful it will be positive.”

Shift to Gaborone

Sightholders reported an easy transition of collecting their De Beers goods in Botswana for the first time, dismissing concerns they had prior to the sight about the relocation. They noted that all the technical processes went smoothly, the building was ready and most of the sales personnel from London were present to make the transition consistent.

Sightholders who spoke with Rapaport News singled out the travel time to get to Gaborone, coupled with bringing the goods back to their respective centers, as the only inconveniences associated with the move as most had to transit through Johannesburg to get to Gaborone.

De Beers reported that its new $35 million facility was completed ahead of schedule and below budget and supported by the Botswana government’s investment in the Gaborone airport to improve the entry for sightholders.

“We and our partners in government have worked extremely hard to make this a success and I am very proud of what we have achieved,” said Nigel Simson, senior vice president of sightholder services at De Beers. “We will continue to seek improvements as we focus on establishing Botswana, and the broader southern African region, as one of the world’s major diamond hubs.”
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Tags: Avi Krawitz, De Beers, diamonds, gaborone, Rapaport
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