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De Beers November Sight Estimated at $550M

Nov 11, 2014 5:44 AM   By Ronen Shnidman
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RAPAPORT... De Beers November sight closed with an estimated value of $550 million. Minor adjustments to prices and assortments were reported in different categories.  Sightholders observed  that while the adjustments made by De Beers slightly improved the profitability of some boxes, certain categories still cannot be manufactured into polished diamonds at a profit.

“The mood at the sight was not positive because polished prices have not stabilized and it was soon after Diwali, so the factories are just starting up again,” said a sightholder from India. 

Diwali took place on October 23 this year, ahead of the sight which ran November 3 to 7. The diamond industry in India closed for an extended vacation over the festival, with normal trading and production activity resuming only this week. Polished prices continued to decline during the festival with the RapNet Diamond Index (RAPI) for 1-carat laboratory-graded diamonds down 2.2 percent in October. 

Some sightholders expressed disappointment that De Beers did not reduce overall prices at the sight given the continued decline in polished prices. A sightholder from Israel stressed that the market was challenging for manufacturers and that he rejected some supply. He noted that his current rough purchases are geared toward ensuring that his factories have enough polished ready when retailers begin to restock their stores after the Christmas shopping season.

Sightholders and brokers said refusals and box deferrals at the sight were noticeable, as was the case in October, but they did not reach significant levels. Some ex-plan goods was sold at the sight.

David Johnson, the head of midstream communications for De Beers, said that the November sight had been similar to the October sight in terms of prices and assortment quality, with the volume supply in line with expectations.

He noted, “The third quarter and beginning of the fourth quarter can be a bit of a tough time for the industry because it’s a historically slow period in the business cycle that lacks a major gifting occasion. There are also several [religious] holidays that slow down activity within the industry.”
 
Johnson explained that De Beers had not made a sizable correction to rough prices because the company still believed that the fourth quarter Christmas shopping season would be a good one in major consumer markets. De Beers expects that once the retail sales come through it should free up liquidity in the diamond industry’s midstream.

“De Beers chooses to take a sustainable long-term approach to pricing,” Johnson added. “This means that when the [rough] market is particularly buoyant we don’t chase the prices up, and when there is a seasonal lull we don’t chase the prices down.”

Rough trading on the secondary market reflected  tight liquidity and thin profit margins among manufacturers, with most boxes trading at a discount and on credit terms. “There is nobody there to buy in cash,” said a sightholder from India.

Mike Aggett, the CEO of H. Goldie & Company, a diamond broker for De Beers sightholders, wrote on his blog that polished prices will have to rise for manufacturers to turn a profit if rough diamond prices remain at current levels. Otherwise, Aggett cautioned that manufacturers could shift focus to polishing cheaper, labor intensive rough in early 2015 just to keep factories running.
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Tags: De Beers, Liquidity, november, RAPI, Ronen Shnidman, secondary market
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