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DTC to Allow Deferments as Rough Market Chokes

Sightholders may reschedule up to 50 percent of the total value of the July sight in-plan-‎target.
Jun 28, 2012 3:55 AM   By Avi Krawitz
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RAPAPORT... The Diamond Trading Company (DTC) has informed its sightholders that they can defer ‎goods at the next DTC sight as diamond cutters face tight liquidity and low profit margins. ‎

Sightholders may reschedule up to 50 percent of the total value of the July sight in-plan-‎target to any other sight in the current intention to offer (ITO) period that ends March ‎‎2013. ‎

DTC explained in a memo to sightholders obtained by Rapaport News that the move ‎came in response to sightholder feedback that applications for goods at the upcoming ‎July sight are in excess of their current requirements.‎

Reports from the previous DTC sight, which took place during the week of June 11, indicated ‎that sightholders deferred goods due to diminished demand for rough and as DTC prices ‎remain high. DTC made slight adjustments to prices and ‎assortments at the sight that ‎enabled the boxes to maintain their value. Trading in the secondary markets has been ‎slow in the weeks following the June sight with most DTC boxes selling ‎at list or below list ‎prices. ‎

Des Kilalea, an analyst with RBC Capital Markets, said he expects rough prices will ‎remain under pressure in the near-term, given the lack of liquidity in the cutting centers.   ‎

‎"Evidence is that the rough market remains choked with goods which are probably too ‎expensive to make much margin on at present," Kilalea wrote. "Diamantaires are facing ‎the twin pressures of slow sales of polished stones and rough prices which seem out of ‎kilter with polished. Add to that tight liquidity and a slowing economic outlook for China ‎and it is clear that the industry is in a difficult phase right now.”‎

Kilalea added that while larger producers have the option to defer sales, smaller ‎companies are less flexible due to project funding.   ‎

RBC estimates that De Beers sales, including at DTC, its retail division and its industrial ‎synthetics business, fell 15 percent year on year to around $3 billion in the first half of the ‎year. Rapaport estimates that DTC sales declined by 19 percent to approximately $2.83 ‎billion during the period. ‎

Kilalea said he expects continued uncertainty for the diamond market in the second half ‎of the year, which would affect sightholders' ability to take the rough they are currently ‎postponing at later sights.‎

‎“How sightholders will accommodate the additional rough, which they deferred in June ‎and that they are likely to reject in July will be dependent on the outlook for [the second ‎half] and the prices at which the rough is available,” Kilalea wrote. “So it is hard at this ‎stage to see sightholders willingly taking more rough post July unless the world looks ‎healthier and rough prices are more economic to process.”‎

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Tags: Avi Krawitz, De Beers, Diamond Trading Company, diamonds, DTC, Rapaport, Sightholders
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