Will De Beers Maintain Price Premium?

Market Analysis
12/10/2015 15:00

According to industry analyst Edahn Golan, De Beers' sightholders want and need to see a 10-20% rough price reduction, without which the goods will remain uneconomical to purchase. Two factors have led sightholders to expect that De Beers will do just that. The first is De Beers' decision to (reportedly) sell a large amount of rough to certain sightholders outside the last sight at a discounted price. This shows that De Beers is fully aware that their prices are too high. The fact that these goods were still priced below De Beers’ list prices even after sold in the secondary market also shows that the list price is inflated so far above the benchmark price that it would have been cheaper to buy on the secondary market than from the source itself.

The second factor is the range of expenses that need to be taken into account that are not usually found when buying from other sources. These include, says Golan: Value Added Services (VAS), adding 1-1.5% to the cost; a 1% brokers’ fee; the cost of implementing Best Practice Principles (BPP); the cost of changing accounting standards to IFRS auditing and more. In addition, De Beers requires sightholders to test their rough and polished goods for the presence of lab-made diamonds. These extra costs add up and are only a part of the cost of doing business with De Beers. And since these are costs that De Beers fully controls, sightholders want the cost of rough to take them into account and De Beers to lower their prices.