De Beers Finally Yields, Lowers Rough Prices

Rough Market
05/11/2019 11:24

According to Bloomberg News' Thomas Biesheuvel, De Beers at its November sight took the nearly unprecendented step of lowering the price of rough diamonds by 5%, according to sources that spoke anonymously as the matter is private. Our sources in Antwerp were able to confirm a softening of prices in most categories but did not place a percentage figure on it. Contracted buyers have expressed frustration with the cost of De Beers rough diamonds relative to the prices of polished, which has led to minimal margins if not losses for buyers on the secondary market as well as manufacturers. Traders in Antwerp have been quite open about the situation: "Where is the margin?", one asked rhetorically. "There is none."

The move comes after two months of a new policy the miner has implemented to provide greater flexibility to buyers struggling with an industry-wide slump caused mainly by an oversupply polished stones in the diamond pipeline. De Beers has reportedly given its clients the opportunity to either leave up to 50% of available goods on the table, or to increase their 'buybacks' of goods buyers cannot use to 20%, or in some cases 30%, albeit at a discount proportionate to the percentage of buybacks. De Beers' intention with this policy was to lower the pressure on buyers without lowering their prices, as they and other major producers such as Alrosa favored a ‘price over volume’ strategy in managing its supply, reducing sales volume while protecting prices.

This is not the first time De Beers has lowered it prices, as they reportedly slashed prices up to 10% on lower-quality diamonds in November of 2018, but this time it seems the cuts were "across the board." As quoted by Biesheuvel, Edward Sterck, an analyst at BMO Capital Markets, said, "De Beers is a price setter and has not made any price cuts thus far, despite the open market price for rough diamonds falling by about 9% year-to-date." This is an optimistic estimate. As The Diamond Loupe reported last month, factoring in sales from all producers for the year to date, the average price per carat of Antwerp's rough-diamond imports and exports has declined by 15-16%. Paul Zimnisky’s Global Rough Diamond Price Index hit a 52-week low in October after having fallen by 6% from its high in November 2018. The decline set in around April- May 2019 and has continued unabated since then.

This has placed a tremendous strain on producers of high proportions of smaller goods, such as Firestone, Mountain Province (reporting a 27% decline in the average price per carat in Q3, from diamonds sourced from the Gacho Kue mine it shares with De Beers) and Stornoway, which recently sold the mine to a group of investors (see details here). De Beers has also suffered despite keeping prices firm thus far; their sales so far this year are about US$1 billion lower than a year ago. At the past three sales, De Beers made less than $300 million, the lowest levels dating back to 2016. Through the first eight sights of 2019, De Beer’s sales are down 27% compared to the same benchmark in 2018 and 2017, and are down 31% compared to 2016.

Nonetheless, De Beers CEO Bruce Clever has insisted that the weak rough market does not mean that demand for polished products has softened. Last week, in their Diamond Insight Report 2019, the company released data that showed demand for diamond jewelry rose 2.4% last year, and in the U.S. market, where almost half of all diamonds are sold, the increase was 4.5%, and in China (14% of world market), demand rose by 4.7%, though it slowed "considerably" in the second half of 2018.

Image: De Beers Group