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De Beers Sales Slump Amid Market Weakness

Jan 29, 2019 5:49 AM   By Joshua Freedman
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RAPAPORT... De Beers’ rough-diamond sales slowed in January as a disappointing holiday season piled further pressure on the midstream.

Proceeds fell to $505 million at the first sales cycle of the year, 25% lower than the $672 million it sold a year ago, the company reported Tuesday.

January is typically one of the biggest sales periods of the year for rough, as retailers and dealers restock after the holidays. However, sluggish polished demand resulted in caution among De Beers’ buyers, a sight broker noted. Many of them rejected more goods than normal, including larger stones they don’t usually refuse, he added.

“Sentiment hasn’t got much better over the holidays, so people are really struggling with polished sales being much slower than expected in January,” the broker told Rapaport News Monday. “It led to a lot of resistance at the sight. People looked at the goods, [but] margins are under pressure, and, therefore, people were not particularly pleased with [the diamonds] they saw.”

The miner kept prices stable, but dealers saw a decline in the premiums they could achieve on the secondary market, the broker added. A number of sight boxes are even reselling for less than the price at which traders bought them from De Beers.

Many sightholders wanted to leave products on the table, but didn’t because they feared losing future De Beers supply, Dudu Harari of brokerage firm Bluedax wrote in a report on the sight.

Meanwhile, there’s currently little hope of any long-term improvement in midstream profit margins, a sightholder explained.

“Polished prices are stable, even if the market improves, so there’s no room for rough prices to go up on the secondary market,” he said. “Even if [profitability] increases, it will only be for a few months, because there’s a lot of competition in the market.”

Lower-priced stones have been especially weak. De Beers allowed sightholders to defer purchases at its September sale, and subsequently reduced prices of its cheaper goods at the November sight. Sales picked up in December as traders returned from the Diwali break, but the lower-end items remained slow this month.

“Rough diamond-sales during the first sales cycle of 2019 were lower than those for the equivalent period last year, reflecting higher-than-normal sales in the previous cycle…and the slow movement of lower-value rough diamonds through the pipeline,” De Beers CEO Bruce Cleaver said Tuesday.

The fourth quarter of 2018 saw a mixed season at the consumer level, with major retailers Signet Jewelers and Tiffany & Co. both posting weaker holiday sales than they had expected. The US-China trade war has created concerns about consumer demand in the two largest markets for diamond jewelry, while the Indian cutting sector is also struggling with tightening bank credit and a weaker rupee.

“It seems like there are no solutions to the problems the industry is facing,” Harari added, citing the impact of reduced financing, as well as competition from lab-grown diamonds.

“Manufacturers are saying rough prices are too high, and that the polished market is slow and selective. If the polished market [were] better, there would be an increase in rough prices.”

Image: A De Beers sightholder examines a parcel of rough diamonds. (De Beers)
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Tags: Bluedax, Bruce Cleaver, De Beers, Dudu Harari, Joshua Freedman, Manufacturing, margins, midstream, polished demand, premiums, prices, profit margins, profitability, Rapaport News, rough, rough demand, Rough Diamonds, secondary market, Sightholders, Sights
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