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De Beers Enables 100% Deferrals at November Sight

Low Rough Diamond Demand Expected Through 4Q

Oct 26, 2015 7:51 AM   By Rapaport News
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RAPAPORT... De Beers will allow sightholders to defer their entire November allocations until December as diamond manufacturers remain under pressure from weak market conditions.

“Further to discussions with several of you following recent cutting center visits, we are writing to provide an overview of some of the additional flexibility we will be putting in place for sights 9 and 10,” the company said in a note to sightholders obtained by Rapaport News. “We understand that many businesses' short-term demand requirements may well have seen some significant changes, so we are looking to find the best ways to be flexible in meeting your needs.”

Sightholders reported a somber mood at the October sight and refused about half of their allocated supply, which was consistent with the level of deferrals throughout the second half of the year. Last month’s sight had an estimated value of $200 million and De Beers rough sales are down about 38 percent year on year so far in 2015, according to Rapaport estimates.

Diamond manufacturers have significantly reduced their rough diamond intake and factory output in 2015 as polished sales declined largely due to a slowdown in China. 

Sarine Technologies, which supplies equipment used in diamond manufacturing, said it expects manufacturing activity will continue to be restrained and will only start to trend back to normal after Diwali - toward the end of November - or in the first quarter of 2016. Much depends on “developments in rough diamond pricing and holiday retail sales,” the company said in an October 1 note warning investors of lower-than-expected third quarter revenue.

Price Stability, Supply Flexibility

De Beers and ALROSA kept rough prices stable in October, having reduced prices by 8 percent to 10 percent in the third quarter. Sightholders expect prices from both the major miners to remain relatively stable until the end of the year.

“They’re holding on as long as they can because they’ve learned from the past that if they drop prices it takes them years to bring them back up,” said an Israel-based manufacturer who requested anonymity. “They’re fighting tooth and nail to keep prices high – allowing sightholders to take what they need, fewer goods, and delay the conversation by as much as possible.”

In its note, De Beers said sightholders could decide whether they would like to defer or bring forward as much of their allocations as they choose (i.e. all or some elements of their allocation), from one sight to the next in November and December. That means that sightholders have the flexibility to take delivery of their allocated supply over the next two sights in any way that suits their needs, the company explained.

In addition, sightholders can also apply for goods that are not in their intentions to offer (ITO’s), subject to availability, “so as to provide you with the flexibility to meet your evolving needs in this fast-moving environment,” De Beers stated.

Cautious Outlook

Still, diamond trading is expected to remain cautious in the next two months. Sarine explained that although there has been a significant correction of rough prices [in the third quarter], there is still reluctance by both mid- and downstream buyers to replenish stock, as they believe further price adjustments are warranted and may be forthcoming.

Sightholders who spoke with Rapaport News during the October sight were uncertain whether the decline will continue or if the holiday season would lift trading in the coming months.

De Beers recognized their predicament, stating, “While we have traditionally seen a firming up of polished diamond demand as the holiday selling season progresses, and we anticipate potential for the same this year as our additional marketing spend gains traction with consumers, we fully appreciate that the midstream continues to face challenges.”

At least at next week’s sight, which runs November 2 to 6, rough demand is expected to remain subdued.

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