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De Beers October Sight Estimated at $460M

Oct 14, 2014 9:23 AM   By Ronen Shnidman
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RAPAPORT... De Beers October sight closed with an estimated value of $460 million. The company reportedly lowered prices for several different categories of goods between 2 percent and 4 percent. Sightholders noted that De Beers also shifted the assortment for some of its boxes toward higher qualities, which partially offset the lower prices.

Some sightholders said they had expected box prices to decline since this time of the year is usually weak for rough purchases and given the decline in polished diamond prices during the third quarter.

“The mood at the sight was a bit subdued, since you know the goods won’t make it to market in time for Christmas holiday shopping because all the workers are about to go home to be with family for Diwali,” said an Indian sightholder. “People were also more cautious because polished prices have been falling recently and they are worried about their liquidity.”

Diwali takes place on October 23 this year, but some diamantaires in India are expected to go on vacation as early as the end of this week.

The October sight, De Beers eighth sight this year, was much smaller in size than those that immediately preceded it. Sightholders said that there was very little ex-plan goods made available at the sight and that there were a small but noticeable amount of sightholder refusals and box deferrals.

David Johnson, the head of midstream communications for De Beers, said that the company had expected the sight to be small based upon sightholder intentions to offer (ITO) that it had received. De Beers uses ITOs to coordinate the supply of rough to manufacturers at sights throughout the year.

“The autumn is typically a bit of a tough time for some of the manufacturers, who feel very pressured in terms of liquidity,” Johnson said. He explained that this has been the case for at least the past five years as many major retailers switched to just-in-time supply chain management. This means that manufacturers must rush to polish a large amount of goods just before the fourth quarter holiday season which results in a large portion of their working capital being tied up until the goods sell. 

Still, Johnson said De Beers expects retail sales for diamond jewelry to perform well during the fourth quarter based on positive macroeconomic indicators in the U.S., China and India – the world’s three largest diamond markets.

He added that while De Beers made some small changes to prices in certain categories to adjust to market conditions, overall prices did not change. Despite those adjustments, sightholders still expressed concern about razor thin profit margins as polished prices have also fallen in recent weeks. The RapNet Diamond Index (RAPI) for 1-carat laboratory-graded polished diamonds fell 1.5 percent from September 30 to October 12 amid weak trading and excess supply caused by reduced turnover time at the Gemological Institute of America (GIA) for grading goods.

Rough trading on the secondary market reflected tight liquidity among diamantaires with many boxes offered at a discount and on credit. Mike Aggett, the CEO of H. Goldie & Company, a diamond broker for De Beers sightholders, said that rough prices in the overall market fell by around 10 percent in the past month. Aggett wrote on his blog that he expected the downward trend in rough prices to continue in the coming weeks.
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Tags: David Johnson, De Beers, DTC, Liquidity, october, polished, Ronen Shnidman, sight
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