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Sightholders Reject Goods at $600M De Beers Sight

Dec 16, 2014 9:16 AM   By Ronen Shnidman
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RAPAPORT... De Beers December sight closed with an estimated value of $600 million. Minor adjustments to prices and assortment qualities were reported in different categories, but no significant changes were noted. Sightholders and brokers reported that a large number of boxes were deferred, with the highest estimate of the amount of goods left on the table -- reaching 25 percent of the overall sight.

“I haven't seen such a bad mood at a sight for a couple of years now,” said a sightholder from India.  He explained that sightholders had already complained at the previous two De Beers sights that prices were too high to polish diamonds with a profit. The sightholder added, “"We didn't see any reaction on De Beers part so we were left with no option but to leave the goods on the table [at the December sight].”

Anglo American, De Beers parent company, stated in a recent presentation to investors that overall rough prices have increased 7 percent for the year to date.

The negative sentiment at the sight reflected the mood in the rough market at large. Weak demand from manufacturers was also on display at ALROSA’s final sale of the year, which occurred concurrently with the De Beers sight from December 8 to 12. Market participants said that overall prices at the ALROSA sale declined a bit.

Notably, De Beers temporarily relaxed sightholder rules at the December sight to allow manufacturers that operate under beneficiation agreements in southern African nations to defer up to half the goods they had planned to buy in December to the first sight of 2014. Alternatively, these manufacturers could choose to defer one box per rough category within a six-month period, as is traditionally the case.

De Beers said it had adjusted the rules in response to feedback from these manufacturers and that they would not be able to meet their plant production targets set earlier in the year in their intention to offer (ITO) agreements.

The one exception to weak market demand, was low-end rejection goods, which brokers said had little trouble moving at either the sight or on the secondary market.

David Johnson, the head of midstream communications for De Beers, said that the December sight had a higher amount of deferred goods than in previous sights but that was to be expected as it reflects the challenging environment the industry experiences at the end of the year.

“Last year, retailers restocked their polished diamond inventory earlier in the holiday shopping season, but this year it seems that they are delaying their orders to the last minute,” he said. “But De Beers still sees strong consumer demand in the major markets, especially the U.S."

Johnson explained that while U.S. retail sales for Black Friday and the entire Thanksgiving  weekend may have been disappointing -- many retail analysts suggested it was the result of U.S. consumers feeling less of a need to hunt for bargains and that sales could pick up later in the Christmas season. He added that De Beers thinks the fundamentals of demand are fairly strong and that the industry can expect some moderate growth in U.S. retail demand to work its way through the diamond pipeline and persist after the Christmas shopping season.

Overall rough trading on the secondary market was slow, even though almost all boxes were offered at a loss and on generous credit terms

Guy Harari, the CEO of Bluedax, said, “All the ingredients that cause market indigestion came together. Prices in the polished market are not good, the rough is too expensive and there are liquidity problems.”   He added that across the market there seemed to be a consistent trend of less sales, longer credit terms offered on boxes and prices were headed lower.
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Tags: Blue Dax, De Beers, margins, Ronen Shnidman, rough, sight, Sightholders
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