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De Beers October Rough Sales Reflect Depressed Diamond Market

Oct 14, 2015 9:15 AM   By Rapaport News
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RAPAPORT... De Beers sightholders refused about half of their allocated supply last week, reducing the estimated value of rough sold at the sight to $200 million.

The move extends a trend of refusals from previous months, turning the mood at the event somber even as the mining company kept prices stable. Rough trading on the secondary market was “extremely quiet” following the sight and boxes sold at a discount to De Beers list prices after additional costs such as value-added services and broker fees, according to Guy Harari, chief executive officer of Bluedax, an online rough trading brokerage.

“The mood is the worst I’ve seen over the past few sights,” Harari said. “It’s no longer just a question of price; there are no buyers for polished and only demand for a few items.”

At the previous sight in August, De Beers allowed sightholders to defer up to 75 percent of allocated supply whilst cutting prices by 8 percent to 10 percent. The company also allowed sightholders to re-phase their in-plan allocations for the six sights from October to the end of the current contract year in March.

“De Beers reduced prices in August but it wasn’t enough because polished prices continue to fall,” said a Mumbai-based sightholder. “There are enough polished goods for the season and even if there aren’t, let the retailers look for the goods. There’s no point in buying [rough] when you can’t make a profit.”

Lack of Polished Demand

Sightholders were unsurprised as De Beers kept prices stable in October even though they struggled to garner a profit from its supply of rough diamonds.

“The main concern in the market is no longer prices. It is a lack of buyers for the polished that’s worrying,” said an Antwerp-based sightholder. He would rather see rough prices remain stable until the end of the year as another bout of cuts may result in a further drop in polished prices.

Polished prices dived in September, with the RapNet Diamond Index (RAPI) for 1-carat GIA-graded diamonds sliding 3 percent for the month and 6.3 percent in the third quarter.

“We need to wait and hope that end-of-year sales are strong and that China comes back into the market – even if that seems unlikely at this point,” the Antwerp sightholder said. “Right now, there are plenty of goods on the market and no confidence to buy.”

Enough Polished Inventory

The market is still in a difficult period of destocking and is waiting for a tipping point, David Johnson, the head of midstream communications for De Beers, said. He acknowledged that sightholders were less optimistic as they have endured a long, challenging period of difficulty.

Still, Johnson expects a gradual recovery as De Beers marketing efforts take effect over the holiday period and inventory levels are eventually depleted. 

Until that happens, manufacturers will keep polished production at significantly reduced levels. One sightholder noted that while factory output has slumped 30 percent to 50 percent from last year, so has their polished sales turnover. “So, inventory levels have stayed high even though we reduced production,” he explained.

Consequently, sightholders expect demand for rough to remain low until the end of the year and the miners are adjusting their sales to this market reality.

When it Rains, it Pours

Okavango Diamond Company, the Botswana parastatal which is entitled to sell 14 percent of Debswana’s production, has sold reduced volumes in response to market conditions, said its managing director Toby Frears. Okavango only offered diamonds in the 10-plus carat range at its October auction and has canceled its sale in November.

In the midst of falling prices and higher inventory levels, some traders spotted better buying opportunities on the auction and tender circuit. One manufacturer reported that prices of 3 to 6 grainer rough – which are generally cut into 0.25-carat to 0.40-carat polished – offered by Petra Diamonds dropped by around 17 percent at its October sale as the goods couldn’t sell at the previous high prices.

“Across the board at all the tenders, anything that polishes into pointer sizes (below 1-carat) is being avoided,” the manufacturer added. A spokesperson for Petra declined to comment on individual tenders.

Like De Beers, ALROSA also kept average prices stable at this week’s ALROSA Alliance sale that ends on Friday, having dropped prices by around 8 percent to 10 percent in September. CEO Andrey Zharkov told the Russian media this week that prices have declined by 15 percent since January but are expected to remain stable until the end of the year. The company allowed its clients to defer 50 percent of their allocated supply again in October, sources told Rapaport News. ALROSA spokespersons declined to comment for this story.   

Similarly, Harari said that demand on the secondary market was selective for a very narrow range of goods and that the low level of market activity was affecting everyone.

“People are cautious. They don’t want to give credit because they’re worried about bankruptcies and it’s very difficult to work in such a market,” he said. “We have to be patient because there are no miracles. When it rains, it rains on everyone.”

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Tags: Alrosa, De Beers, Rapaport News, Sightholders
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