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De Beers Lets Clients Reject 50% of Goods

Sightholders can also sell 20% of diamonds back to the miner.
Aug 18, 2019 8:27 AM   By Joshua Freedman
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RAPAPORT... De Beers will allow sightholders to refuse more rough diamonds than usual at this week’s sight, aiming to ease pressure on the market without reducing prices.

Clients will be free to turn down 50% of available goods amid a slump in rough demand, a broker told Rapaport News on condition of anonymity. The company will also buy back up to 20% of customers’ purchases, compared with the standard 10%, he added.

Unlike rejections, buybacks involve customers acquiring the diamonds, and then selling them back to De Beers at an agreed price. They are beneficial for sightholders, because the original purchase counts toward their “demonstrated demand” — the track record of rough-buying that De Beers uses to determine future allocations, the broker explained.

The concessions are new for the August sight, which begins Monday, and are part of De Beers’ recent efforts to increase flexibility for manufacturers and traders struggling with an oversupply of rough and polished. Revenues from the sale are likely to be much lower than the $503 million the miner recorded during the equivalent cycle last year, the broker predicted. De Beers will report the total next week.

“[This] is a measure where they…try to maintain rough prices where they are, and where they should be…and help the midstream digest the polished overhang,” the broker noted. De Beers prefers to limit sales volumes rather than reduce prices, as discounts on rough can lead to retailers and jewelry manufacturers requesting lower polished prices, he observed.

In July, sales fell to their lowest level since late 2015, as sightholders rejected large quantities of rough. De Beers offered buyers extra deferrals of goods to later sights, and brought forward the annual opportunity for customers to reschedule their purchases.

“We have offered customers additional flexibility during sight sales to help manage short-term issues relating to higher-than-normal polished-diamond inventories in the midstream,” a De Beers spokesperson said.

Image: Rough-diamond sorting at De Beers’ Global Sightholder Sales operation in Botswana. (Ben Perry/Armoury Films/De Beers)
Tags: De Beers, demonstrated demand, Joshua Freedman, mining, Rapaport News, rough, Rough Diamonds, Sightholders, Sights
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