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DTC June Sight Estimated at $425M

Higher demand for rough diamonds raises questions

Jun 16, 2009 7:07 AM   By Avi Krawitz
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RAPAPORT... The Diamond Trading Company (DTC) June sight is estimated to have been the largest so far this year, at $425 million. While sightholders were clearly in the mood to buy rough goods, few could explain the surge in demand, as trends in the polished market remain weak.

“Dealers came back from JCK Vegas with mixed feelings and didn’t give the impression that the U.S. market has made any comeback to justify this level of buying,” said one sightholder. Another De Beers customer noted that at 2008 prices, the sight would have been close to $700 million, meaning that the volume of rough diamonds sold was about the same as a year ago. “It’s also about five times the size of the January sight, and I just don’t see that the demand for polished has increased by that amount.”

Louise Prior, DTC spokesperson, said that the demand is being driven by both the polished market and trends in production of rough. “We see a pull-through of polished in the pipeline where retailers are replacing depleted stock,” she said. “There is also the aspect of less rough on the market as a contributing factor.”

Others agreed that the absence of goods from ALROSA and Endiama in the market was helping spur demand for DTC rough, as those two companies have been selling only to government agencies during the economic downturn.  Some felt that sightholders were hurrying to buy rough while it was available as they were concerned that shortages would develop as a result of the recent De Beers freeze on production. One sight participant said he felt that the higher level of buying was geared toward dealers of rough rather than being in the interests of the manufacturers, particularly “as prices [for rough] do not reflect what’s happening in the polished market.”

DTC June prices were relatively consistent with those a month ago, with some adjustments on prices for smaller, lower-quality goods. Outside the DTC system, rough prices have shown sharp increases at tender and in the open market in the past month. A Petra Diamonds representative told Rapaport News that prices increased 15 to 20 percent at its recent tender, and reports from this past week’s BHP Billiton sale indicated that prices “went sky high.”

“DTC prices are about in line with the rest of the market now. In fact, DTC is probably one of the better buys around right now for rough-to-rough dealing,” said a sight participant. “But the situation is not good for manufacturers, as no box is yielding a profit of more than 10 percent for polished. We are back to the situation we had in July 2008, when you got the impression that prices were in line with each other but manufacturers couldn’t make a profit,” he added, expressing his concern that the market may be heading for another downturn.

Prior said that DTC was “cautiously optimistic” about its prospects for the coming months. Most participants appeared confident that the higher demand would be maintained through July and August, but would slow thereafter as ALROSA starts selling again and the Diwali season in India ends.

De Beers appeared more confident of its position than at previous sights, putting a 30 percent limit on the amount that sightholders could reject, where during the months of great weakness in January through May, it allowed the whole box to be rejected. There were also applications for an estimated $100 million of "ex-plan" goods — excess items not originally in sightholder applications — that the company did not fill.

De Beers reportedly told sightholders that it would like to see stability at a lower level of sales for the remainder of 2009, setting it up for a better 2010. The company has set a target for sales of rough of $3 billion for this year. Sales were down 67 percent to approximately $1.1 billion through the first five sights of the year, according to Rapaport estimates. Accordingly, the remaining five sights of the year will have to bring in an average of $380 million each for De Beers to achieve its goal.

For now, however, demand continues to rise, with applications for the July sight said to be higher than June's $700 million. Sightholders nevertheless appear to have the same goal of "lower-level stability." “We saw a bit of hype at this sight, and I don’t believe DTC has the goods to sell at these levels in the coming months,” a sightholder said. “If it continues to rise, there will be another downturn.”

DTC Sight Results 2009
MonthDateSight Estimate
January19-23$100 MIL
February23-27$110 MIL
March30-3 (April)$200 MIL
May5-8 $250 MIL
June8-12$425 MIL
September29-2 (Oct)

DTC Sight Results 2008
MonthSight Estimate
January$628 MIL
February$639 MIL
March$585 MIL
April$703 MIL
June$745 MIL
July$774 MIL
August$780 MIL
September$645 MIL
November$323 MIL
December$108 MIL
Note: Rapaport has revised its estimates in the above table for 2008 to reflect De Beers DTC reported sales for the year.

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Tags: Alrosa, BHP Billiton, De Beers, DTC, ENDIAMA, Government, India, JCK, Petra Diamonds, Production, Sightholders, Sights
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