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Cutters’ Profits Slim at $520M De Beers Sight

Rough-price increases and limited supply put pressure on the midstream.
May 16, 2017 3:11 AM   By Joshua Freedman
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 De Beers’ May sight closed with a value of $520 million as buyers reported perceived shortages and said manufacturing profit margins were tight.

Sightholders estimated that De Beers had raised prices by an average of 1% to 2%, but noted that the miner had also adjusted the assortment of goods it was presenting — meaning that boxes were about 3.5% more expensive than in the previous sight, one Antwerp-based sightholder told Rapaport News.

The fourth sight of the year was smaller than the $586 million sale in March and lagged behind the $636 million De Beers reported for the same cycle a year ago.

“De Beers put out a medium-sized sight, without making extra goods (ex-plan) available [beyond the standard contract],” a rough broker said. “I don’t know if it’s a strategy or it’s just what’s available, but it’s had a firming effect on the market.”

The increase in rough prices, without a commensurate strengthening of polished prices, has had a detrimental effect on midstream profit, another sightholder said. Manufacturers who buy directly from De Beers and sell the goods as polished can make a slim profit, but premiums of about 5% to 10% on the secondary market have made it hard for rough traders to break even, he explained.

“If you can get [a margin] from the sight, it’s the lowest single-digit profit possible,” he explained. “But at market prices, it’s impossible. I don’t see this situation going away until the summer. It’s an unusual time of the year to have such strong demand for rough.”

De Beers CEO Bruce Cleaver echoed the latter point in a statement Tuesday.

“We are continuing to see steady demand for rough diamonds, despite the industry entering a typically quieter season,” he said, adding that “sentiment remains positive as we head towards the important Las Vegas trade show in early June.”
Tags: De Beers, Joshua Freedman, Manufacturing, Manufacturing profit, mining, Rough Diamonds, rough sales, Sightholders, Sights
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