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Who’s Buying the Rough?

Editorial

May 8, 2015 5:00 AM   By Avi Krawitz
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RAPAPORT... Much has been said about unsustainable rough diamond prices in the past year. The lack of profitability in the diamond manufacturing sector has caused manufacturers to significantly scale down their operations and rough purchases in the past six months.

Indeed, in an article published this week, Martin Rapaport, chairman of the Rapaport Group, urged the trade to prioritize the purchase of polished diamonds over rough. Rapaport called on the banks to stop financing unprofitable diamond manufacturing until polished prices rebound and profitability returns.

Still, manufacturing remains at the core of the diamond industry, employing tens of thousands of workers and providing sustenance to possibly millions of their dependents. In the long run, manufacturers require profitable rough supply to ensure continuity in their operations.

Many of the larger manufacturers argue that securing consistent long-term supply is the key to gaining that continuity. The guarantee of consistent rough supply enables manufacturers to plan their production and assure polished supply to their jewelry wholesale and retail clients who often run programs with specific needs.

Consequently, a significant proportion of rough diamond production is sold to the market via long-term contracts.

Not all diamond mining companies are able to sell their production in such a manner. Most junior and mid-size miners sell via spot auctions or tenders, whereby buyers compete for rough in a bidding process. Some also have off-take agreements with buyers who are offered first selection of the mining company’s supply at a pre-negotiated price.

Only a handful of the larger mining companies have the scale of production that enables them to guarantee a scheduled, consistent supply of rough to a set group of clients. Therefore, it’s worth noting who the major buyers of rough are in the market, who is selling to them and how.

De Beers, ALROSA, Rio Tinto and Dominion Diamond Corp., which together account for about two-thirds of global production by volume, each recently penned new long-term supply contracts with their respective clients.

De Beers selected 85 clients known as ‘sightholders’ to receive rough during the new three-year contract period that began on April 1. The company sells approximately 90 percent of its supply to sightholders on a schedule of 10 sights per year, and the remainder are mainly sold via auction sales.

Of the total number of sightholders, 81 were selected as part of De Beers Global Sightholder Sales (GSS) – four of which are for industrial diamond supply. Twenty companies receive beneficiation supply in Botswana, eight in South Africa and 11 in Namibia. A spokesperson for De Beers explained that the 11 sightholders in Namibia remained unchanged this year while the company is still negotiating a new sales agreement with the government.

Four companies were awarded accredited buyer status for GSS and there is one accredited buyer for De Beers South Africa supply. An accredited buyer is a new category of De Beers client, giving those selected companies the opportunity to purchase rough from De Beers on an ad-hoc basis, depending on the availability of ex-plan, which is supply that is in excess of sightholders’ annual applications. Three of the accredited buyers have a sight in other beneficiation areas, while two solely have accredited buyer status.

De Beers was scheduled to update its website with the full list of sightholders and accredited buyers this week, coinciding with the first sight of the new contract period. The list revealed that 33 sightholders are based in India; 18 in Belgium; 12 in Israel; nine in the U.S.; four in Hong Kong; two each in the United Arab Emirates (UAE) and Switzerland; and one in Canada, Japan, Mauritius, Russia and the U.K. respectively; according to Rapaport News records.

There’s a similar spread between the major manufacturing and rough trading centers among the so-called ‘ALROSA Alliance’ customers. ALROSA sells about 70 percent of its production through its long-term contracts and the remainder via spot and special auction sales. Among the 47 ALROSA alliance clients listed on the company’s website, 15 are based in Belgium, 14 in India, eight are in Russia, four in Israel and three in Hong Kong. There is also one each from Belarus, Japan and the U.S.

Some 23 companies have supply contracts with both ALROSA and De Beers, according to Rapaport News records. Three of those also have contracts as part of Rio Tinto’s ‘Select Diamantaire,’ program, while five others are also ‘Dominion Preferred Purchases.’ Three companies have long-term supply contracts with De Beers, ALROSA, Rio Tinto as well as Dominion.

Rio Tinto has listed 17 select diamantaires on its website that have access to approximately 70 percent of Rio Tinto’s rough supply. The remainder is sold through tenders and special invitation sales for rough larger than 10.8 carats. Dominion sells all of its rough to the 33 preferred purchasers listed on its website.

In total, 127 individual companies have secured long-term supply contracts from at least one of the four suppliers – including the two which are solely De Beers accredited buyers. The comprehensive list includes companies which are purely polished manufacturers or rough dealers, and some that have downstream activities that extend into jewelry manufacturing, wholesale and retail.

In fact, an increasing number of the major jewelry retailers are appearing on such lists, having raised their rough procurement and diamond manufacturing operations in recent years. Signet Jewelers, Tiffany & Co. (Laurelton), Chow Tai Fook, Chow Sang Sang, Luk Fook and Gitanjali each gained at least one De Beers sight this year.

This column has argued before that these jewelry companies can better afford higher rough prices than their pure-play manufacturing counterparts. They garner higher margins from the jewelry they sell than manufacturers do for their polished.

However, the market is as strong as its weakest link. And manufacturers have signaled in the past few months that they’re not prepared to take continuous losses from their rough supply.

In particular, they’re referring to the high prices of contracted supply. Whereas the bids at auction and tender sales reflect the price that buyers are willing to pay for the goods, contracted supply tends to sell at a premium for the promise of consistency.

Consequently, the ability of these 127 companies to buy rough and sell their polished sets a benchmark for determining the sustainability of the diamond industry.

Having penned long-term rough supply agreements with the major mining companies in 2015, these companies must surely believe that the guarantee of rough supply should bring with it reasonable profits for the core of the diamond industry. Perhaps in the long term it will.

Here’s a list of companies which have supply contracts with De Beers – including Global Sightholder Sales (GSS) and beneficiation supply in Botswana, Namibia (NDTC) and South Africa – ALROSA, Rio Tinto, and Dominion Diamond Corp., as collected by Rapaport News: (A pdf version of the list can be found in the Rapaport Weekly Report).

Company Name Head Office De Beers ALROSA Rio Tinto Dominion
1 A.C. Diam Belgium ALROSA
2 A. Dalumi Diamonds Israel GSS, Botswana
3 Almod Diamonds USA GSS, NDTC
4 AMC Belgium GSS, S. Africa
5 Ankit Gems India GSS, NDTC
6 Arjav Diamonds Belgium GSS, Botswana
7 Arslanian Fréres Belgium ALROSA
8 Asian Star India GSS ALROSA Dominion
9 Aspeco (K Girdharlal) Belgium ALROSA
10 Bhavani Gems India GSS
11 Blue Star Diamonds India GSS, Botswana Dominion
12 Brilliant Gems Belgium ALROSA
13 Brilliant Trading Company (1974) Hong Kong ALROSA
14 Bronner Trading Company Belgium ALROSA
15 Choron Diamonds Belgium Accredited Buyer (GSS)
16 Chow Sang Sang Jewellery Company Hong Kong GSS Dominion
17 Chow Tai Fook Jewellery Co. Hong Kong GSS, Botswana, S. Africa ALROSA Rio Tinto
18 Classic Diam Belgium Dominion
19 Comdragmetall of RS(Y) Russia ALROSA
20 Corona Jewellery Company Canada Dominion
21 Crossworks Manufacturing Canada GSS, NDTC Rio Tinto
22 D Navinchandra Gems Belgium GSS Dominion
23 Dali Diamond Co. Belgium GSS ALROSA
24 DDK Russia ALROSA
25 De Toledo Diamonds Israel GSS
26 Dharmanandan Diamonds India GSS
27 Diacore International Switzerland GSS, Botswana, NDTC, S. Africa
28 Diajewel Belgium ALROSA Dominion
29 Diambel Belgium GSS Rio Tinto
30 Diamond India India ALROSA
31 Diamtrade Belgium Dominion
32 Dianco Belgium GSS Rio Tinto
33 Diarough Belgium GSS Rio Tinto
34 Diarush DMCC UAE GSS
35 Dilipkumar V. Lakhi India GSS ALROSA Dominion
36 Dimexon International Holding India GSS ALROSA Rio Tinto
37 E. Schreiber USA Rio Tinto
38 Eloquence Corporation USA Industrial
39 EPL Diamond Russia ALROSA
40 ESPEKA Belgium ALROSA
41 Eurostar Diamonds International Belgium GSS, Botswana
42 Exelco Belgium GSS, Botswana
43 EZ Diamonds Israel GSS
44 Fruchter Gad Diamonds Israel GSS
45 G.G. Export India Dominion
46 Gemmata Belgium Rio Tinto
47 Gitanjali India GSS
48 Gold Star Diamond India GSS
49 Gomelskoe PO Kristall Belarus ALROSA
50 H. Dipak & Co. India GSS
51 Hardstone Processing Namibia NDTC
52 Hari Krishna Exports India GSS ALROSA Rio Tinto Dominion
53 Hasenfeld-Stein USA GSS
54 Henri Polak Diamond Corp. USA Industrial
55 HVK International India GSS Dominion
56 I.D.R.P. Belgium ALROSA Dominion
57 IDH Diamonds Belgium Rio Tinto
58 IGC Group Belgium GSS, Botswana
59 Interjewel India Rio Tinto Dominion
60 Jasani India GSS ALROSA
61 Jewelex India India GSS
62 Julius Klein Diamonds USA GSS, Botswana, NDTC, S. Africa
63 K Girdharlal International India GSS
64 K P Sanghvi & Sons India GSS ALROSA Rio Tinto
65 Kapu Gems India Dominion
66 Karp Impex India GSS ALROSA
67 KGK Diamonds (I) India GSS, Botswana, S. Africa ALROSA
68 Kiran Gems India GSS ALROSA Dominion
69 Komal Gems (Laxmi) Belgium Dominion
70 Kristall Production Corporation Russia GSS ALROSA
71 Kristall-99 Russia ALROSA
72 L&N Diamonds Israel ALROSA Rio Tinto
73 L.L.D. Diamonds Israel ALROSA
74 Laurelton Diamonds Belgium GSS, Botswana, NDTC ALROSA Rio Tinto Dominion
75 Laxmi Diamond India GSS
76 Lazare Kaplan International USA Accredited Buyer (GSS), NDTC
77 Lazyrit-D Russia ALROSA
78 Leo Schachter & Company Israel GSS, Botswana
79 Lieber & Solow USA Industrial
80 Luk Fook Hong Kong GSS
81 M Suresh Company India GSS Dominion
82 Mahendra Brothers Exports India GSS Dominion
83 Mohit Diamonds India GSS
84 MOTIGANZ Diamond Group Israel Accredited Buyer (GSS), Botswana
85 Niru Diamonds Israel (1987) Israel GSS
86 Penford (Diamcore) Israel ALROSA
87 Pluczenik Diamond Company Belgium GSS, Botswana, NDTC ALROSA
88 Pratham International DMCC India Dominion
89 Premier Diamond Alliance USA GSS
90 Richold Switzerland GSS
91 Rosy Blue (India) India GSS ALROSA
92 Rosy Blue Belgium GSS Dominion
93 Ruis Diamonds Russia ALROSA
94 S. Vinodkumar Diamonds India GSS
95 S.D. Diamond USA ALROSA
96 S.V. Gems Belgium ALROSA
97 Safdico International Mauritius GSS, Botswana, S. Africa
98 Sahar Atid Diamonds Israel GSS ALROSA Dominion
99 Sakha Diamond Japan ALROSA
100 Sauraj Diamonds Belgium Dominion
101 SBMH Israel Accredited Buyer (GSS)
102 Schachter and Namdar Hong Kong NDTC, Accredited Buyer (S. Africa)
103 Shairu Gems Diamonds India GSS
104 Sheetal Manufacturing Company India GSS ALROSA Rio Tinto Dominion
105 Shree Ramkrishna Export India GSS ALROSA Dominion
106 Shrenuj & Company India GSS, Botswana, S. Africa
107 Signet Jewelers USA GSS, Botswana Rio Tinto
108 Simoni Gems Belgium Dominion
109 Singh Diamonds India Dominion
110 Soradiam Belgium Dominion
111 Star Diamond Group (SDG) Belgium GSS ALROSA
112 Star Rays India GSS Dominion
113 Suashish Diamonds India GSS
114 Taché Company Belgium GSS, Botswana, S. Africa ALROSA
115 Tasaki & Co. Japan GSS
116 Trau Bros Belgium GSS, Botswana, NDTC ALROSA
117 Tunalgy Russia ALROSA
118 V D Global India GSS
119 Van Moppes (Tache) UK Industrial
120 Venus Jewel India GSS ALROSA Rio Tinto Dominion
121 Vijay Diamond (FZE) UAE GSS
122 Vishindas Holaram (Lakhi) USA Dominion
123 Wing Hang Diamond Co. Hong Kong GSS ALROSA
124 Yaelstar Belgium GSS Dominion
125 YDI - Yoshfe Diamonds International Israel GSS
126 Yerushalmi Brothers Diamonds Israel GSS, Botswana
127 Yosi Glick Diamonds (2003) Israel GSS


The writer can be contacted at avi@diamonds.net.

Follow Avi on Twitter: @AviKrawitz and on LinkedIn.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.diamonds.net/weeklyreport/ or contact your local Rapaport office.


Copyright © 2015 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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Tags: Alrosa, Avi Krawitz, Chow Tai Fook, De Beers, diamonds, Dominion, Jewelry, Rapaport, Rio Tinto, Signet, Tiffany
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