De Beers Sells $550M of Rough Diamonds in Cycle 4 as Consumer Demand Robust

Rough Market
22/05/2018 09:38

De Beers Group today announced it has provisionally sold $550 million of rough diamonds for the fourth sales cycle of 2018 (Global Sightholder Sales and Auction Sales), against a backdrop of what has been called "record demand". De Beers published last week a report stating that diamond jewelry demand rose to a record $82bn globally in 2017 after several years of stagnation. The $550 million represents a 5% increase in sales compared to the May sight in 2017 as well as in comparison to cycle three. Bruce Cleaver, CEO, De Beers Group, said: “In the fourth sales cycle of the year we saw robust demand for De Beers’ rough diamonds, reflecting continued strong demand for diamond jewellery, especially from American consumers as we head towards the important JCK Las Vegas trade show at the start of June.”

De Beers has now sold $2.31 billion worth of rough diamonds in 2018, which is about 4% less than the $2.39 billion it sold during the first four cycles of 2017. According to Thomas Biesheuvel of Bloomberg, De Beers increased prices for the third straight time at sight number four, according to people familiar with the matter. This time, prices were said to have increased by nearly 1% and while the gains are modest, he writes, they come on top of increases at the two previous sights, which saw gains of 1% to 2%. Furthermore, independent analyst Paul Zimnisky yesterday published an analysis pointing out that rough diamond prices are at a 52-week high, and forecasted industry fundamentals point to an environment favoring higher diamond prices over a period of at least the next four years. He note that diamond demand is correlated with global GDP growth, and a current environment of global economic growth in Q4 2017 and Q1 2018 has translated to strong consumer sentiment and retail sales, especially in the industry’s most important markets.

Commenting on the sight, rough trader Harari writes for Bluedax, "While the market for rough continues to be firm, mostly due to shortages, profitability remains a challenge for manufacturers." Industry liquidity (or the lack thereof) could drive coming changes, and he says the challenging situation for manufacturers will become even tougher when ABN removes banking lines in Dubai and New York. "Banks not lending money is a worry that may trigger moves that have not been anticipated by industry players. If in the next two years there is a simple withdrawal of credit, it may create havoc and a liquidity crunch. At the recent sight, premiums in the secondary market went up from 4.4% in april to 4.8% in May." He adds, "Small Indian goods have been affected by the Indian Rupee, with severe downward pressure on pricing. There is a shortage of larger goods, prompting sellers to ask for higher prices in the secondary market. Despite strong sales by Alrosa, the market is feeling the shortage of rough. Since polished demand is robust, the only way turnover can increase it to slowly lift prices of rough and polished diamonds."