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Rough-Market Momentum Set to Continue

Sep 3, 2020 4:56 AM   By Joshua Freedman
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The resurgence in rough-diamond trading will persist for another two months as manufacturers fill supply shortages and retail demand rises, dealers predicted.

“There’s still a gap, because demand is there, and supply is very limited and will be limited for a couple of months,” a sightholder said. Polished originating from rough bought in August won’t hit the market until mid-October, as it takes around six weeks to complete the entire manufacturing and grading process, he explained.

De Beers sold around $300 million worth of rough last month and Alrosa approximately $200 million after months of low sales that have led to scarcities in certain categories, industry insiders told Rapaport News this week.

Shortages have emerged in several polished categories as India’s manufacturing sector shut down from late March until late May due to the coronavirus pandemic. Those shortfalls will remain for the coming months as continued Covid-19 restrictions mean polished production is at around 30% to 60% of capacity, manufacturers said.

Cutting firms are considering shortening their Diwali breaks this year as they push ahead with filling orders for the fourth-quarter holiday season, executives said. While they usually pause activity for two to four weeks during the festival, which this year begins on November 14, manufacturers also recognize that the market improvement may be short-lived given the uncertainty surrounding the coronavirus.

“[In September and October, manufacturers] can buy from the market [in] the same quantity or lesser quantity,” a long-term Alrosa client explained. “But in November, I’m not sure that this quantity will be sustainable. And then we will see how the Christmas polished sales [are].”

Rough-price correction

Motivation to buy rough increased following De Beers’ rough-price cut of 6% to 8% for 1-carat goods and larger. Alrosa also reduced prices by around 5% to 7% across all categories, including the smaller stones. That helped raise profitability for manufacturers and resellers, as polished prices have firmed in the past month, sightholders noted.

Premiums for resellers of rough on the secondary market have reached as high as 10%, sources reported. Dealers had become accustomed to making minimal margins — or even losses — on De Beers’ and Alrosa’s goods for the past year and a half.

The price adjustments followed a rise in retail demand in the US and the Far East, as well as decreasing availability of polished goods. While the initial recovery in June and July was mostly in the top colors and clarities, the balance between demand and supply has since improved in a broader range of categories, traders reported. Round diamonds weighing 0.30 to 1.50 carats in D-to-J color and VVS-to-SI2 clarity are in short supply, as are some of the lower-quality, piqué goods, a sightholder said.

However, manufacturers may be tempted to capitalize on the upward trend by buying lots of rough and producing too much polished. This could push the sector into an oversupply crisis, a sightholder warned.

“Because these [speculative manufacturers] want to capture market share, production could go up by 20%,” he noted. “It’s very difficult to manage production on an industry level.”

Image: Rough and polished diamonds next to each other at De Beers’ Global Sightholder Sales operations in Botswana. (Ben Perry/Armoury Films/De Beers)
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Tags: Alrosa, Coronavirus, COVID-19, De Beers, Joshua Freedman, mining, rough, Rough Diamonds, Rough markets, rough sales, Sightholders, Sights
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