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Jan. DTC Sight Estimate Under $100M

Sightholders note changes to presentation and invoicing of goods

Jan 22, 2009 1:31 PM   By Avi Krawitz
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RAPAPORT... De Beers sales unit, the Diamond Trading Company (DTC), held one of its smallest sights in history this week, and made some significant changes in the way it was conducted. The January sight will close Friday with an estimated value of between $80 million and $100 million. While similar to the value of the December sight, this is still only one-sixth the estimated value of the January sight in 2008.

Tricky Pricing

For this sight, DTC changed the way in which it offered goods to each sightholder, presenting the rough diamonds in one box rather than separating them into different boxes by category. “Essentially the same goods were presented, but this gave sightholders a bit more flexibility in their decisions to reject goods or not,” explained Louise Prior, DTC spokesperson. She added that the company used the smaller January sight to try some different things and get feedback from sightholders.

Sightholders noted, however, that the move also allowed DTC to change its invoicing practice, giving only a “one-line invoice” on the box rather than listing individual prices for the different types of goods presented. Some were critical of the move, saying that it reduced transparency at the sight, while others complained that it enabled DTC to keep prices at higher levels. For this reason, observers at the sight were hesitant to give feedback on any price movements. They did, however, report some improvement in the assortment of goods.

De Beers is scheduled to give an update on the price adjustments it made during the year when it releases its operations and earnings review, which is expected in February. Prior refrained from giving pricing information about the sight.

Sightholders, however, argued that DTC’s pricing did not reflect the current polished market. “If you are manufacturing based on today’s polished market, you’re losing money on 90 percent of the boxes supplied by DTC,” said one sightholder. “Nobody is happy with the sight. Even those that wanted to buy weren’t happy with the prices. DTC still has a long way to go if they want to be in the market for rough.” He estimated that DTC prices were between 10 and 30 percent above those of other major diamond miners such as ALROSA, BHP Billiton, Rio Tinto and Harry Winston.

Selling to Non-Sightholders

The small sight value came as little surprise to the market after the historically low December sight and the repeated commitment by De Beers to respond to sightholder demand. “In view of the substantially decreased level of sightholder demand for new rough diamonds, we anticipate reducing the intentions to offer (ITOs) offered to sightholders by roughly 50 percent for the remainder of the current ITO period -- the January, February and March/April 2009 sights -- although this will be assessed on a sight-by-sight basis,” Varda Shine, managing director of DTC, said at DTC's annual sightholder cocktail party on Tuesday.

De Beers has also committed to significantly reducing production to avoid its own inventory buildup. In an effort to reduce existing inventories, Shine informed sightholders that “the DTC is exploring options for bringing surplus goods to the market once every avenue of sightholder demand has been satisfied.”

Avi Paz, president of the World Federation of Diamond Bourses (WFDB), welcomed Shine’s announcement, saying DTC’s new approach “could bring some welcome relief to the secondary market.” Others questioned the move, saying there would be similarly low demand for DTC goods among non-sightholders. Market sources, meanwhile, stressed that the decision didn’t necessarily mean a permanent policy shift at De Beers, and that it hadn’t yet been implemented. Prior said the company would likely elaborate on its plans at the February sight.

Despite this move, one industry professional said there was still some pressure on sightholders to take goods from DTC, and that there was a fine line to walk between satisfying one's own business needs and one's relationship with the rough diamond supplier. “DTC is putting pressure on sightholders to take the goods, and many of us don’t have the money for it. They want to sell the goods and are desperate to sell, and are pushing the brunt on us,” the sightholder explained. He added that the requirements imposed by DTC as a condition for receiving rough, such as moving downstream into jewelry lines, required large investments that had affected their ability to get credit from banks for purchases.

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Tags: Alrosa, Banks, BHP Billiton, De Beers, DTC, Harry Winston, Jewelry, Manufacturing, Production, Rio Tinto, Sightholders, Sights, World Federation of Diamond Bourses (WFDB)
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Comments: (2)  Add comment Add Comment
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Jan 23, 2009 12:53PM    By david
Why do we need to care for the DTC.
Maybe it's time to learn DTC.They don't care about the industry.They just care about themselves.
Why do we need to go bankruptcy for them?
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Jan 23, 2009 12:06AM    By shah
it is good that the site volume is low.but still force on expansion plan for any sightholder would take a long time & a real firm decision on it to move ahead with jewellery
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