Advanced Search

Indian Demand Weak at $475M De Beers Sale

New sightholder contract to run until 2020

Oct 17, 2018 4:13 AM   By Joshua Freedman
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share

 Manufacturers were concerned about profitability at last week’s De Beers sight, and expressed hope their new supply agreement with the miner would ease the situation.

De Beers had proceeds of $475 million during the October sales cycle amid weak demand for smaller rough diamonds, the company reported Tuesday. Sightholders described last week’s sight as difficult, as they felt compelled to buy unprofitable goods to maintain bank credit and secure future allocations from the miner.

“People are buying boxes for various reasons, [including] to preserve bank lines,” a broker who requested anonymity told Rapaport News. “De Beers recognizes that demonstrated demand on its own is far from ideal.”

Supply flexibility

De Beers will continue to base its allocations on purchases made in the previous year – a policy known as “demonstrated demand” – during the next contract period, which begins on April 1, 2019. But it will also include attempts to improve flexibility of supply, David Johnson, De Beers’ senior manager for media and commercial communications, told Rapaport News Monday.

The miner recently allowed sightholders to defer supply on weaker categories, and started letting them exchange unwanted boxes with each other in a process known as ITO swaps, he said.

“We’ve tried to improve our understanding of different sightholders’ business accounts so we can cocreate with them opportunities for improvement,” Johnson explained. “We’ve introduced different mechanisms that allow distribution efficiency to work better, and we’re going to consult with sightholders on how we can develop those a little bit more in the next year and half or a bit more.”

The new agreement will run until the end of December 2020, marking a shift to a calendar-year schedule, management said in a presentation during the sight in Gaborone. The company extended the current three-year contract — which began in 2015 — for an additional year to March 2019 to allow sightholders more time to meet its financial-compliance standards.

The next contract will be available for current sightholders that follow those rules and show the required demonstrated demand, Johnson added. It will not accept applications from new customers, as it would for an entirely new supplier agreement.

Rupee slide impacts demand

A recent drop in Indian demand for smaller goods has heightened the need among manufacturers for more flexible supply.

De Beers reduced its rough prices by an average of 1% at the October sight, sources who spoke with Rapaport News estimated. Premiums also fell on the secondary market, with boxes selling for about 2.3% above De Beers’ prices, meaning many dealers struggled to make a profit after the various sight fees, according to a report by Dudu Harari of brokerage firm Bluedax.

“The strengthening of the US dollar over the Indian rupee is also making it difficult to sell polished in Asia and in the local Indian market,” Harari added. “Price drops in the smaller, cheaper goods continue, and we believe there will be a price correction at the source.”

The rupee depreciated 7% in the last three months to INR 73.5 to $1 on Thursday, impacting demand for lower-value categories, De Beers CEO Bruce Cleaver acknowledged. However, “we continue to see steady overall demand for De Beers Group rough diamonds, reflecting ongoing consumer demand for diamond jewelry in the US,” he added.

De Beers’ rough sales amounted to $4.41 billion over the first eight sights of the year, in line with last year, according to Rapaport calculations.

Image: De Beers sight boxes. (De Beers)
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
Tags: Bruce Cleaver, currencies, David Johnson, De Beers, India, Joshua Freedman, Rough Diamonds, rough market, Rupee, Sightholders, Sights
Similar Articles
Comments: (0)  Add comment Add Comment
Arrange Comments Last to First
© Copyright 1978-2022 by Rapaport USA Inc. All rights reserved. Index®, RapNet®, Rapaport®, PriceGrid™, Diamonds.Net™, and JNS®; are registered TradeMarks.
While the information presented is from sources we believe reliable, we do not guarantee the accuracy or validity of any information presented by Rapaport or the views expressed by users of our internet service.