De Beers has announced that its rough diamond sales (Global Sightholder Sales and Auction Sales) for the second sales cycle in February 2016 were $610 million, a 12% increase over the $545 million sold at the first cycle in January.
Mining giant Anglo American, which owns 85% of De Beers, may sell the diamond miner's historic London headquarters, thus firmly bringing about the end of an era for the world’s largest diamond mining company, GemKonnect reported. De Beers’ huge complex in Charterhouse Street, close to the Hatton Garden diamond district, could be added to the assets for sale by Anglo American which last week published a wide scale break-up of the mining giant after reporting the biggest loss in its 99-year history. De Beers' London property could raise around $180 million.
Diamond industry veteran Ehud Laniado said he and other market players expected the strong demand seen in January for rough diamonds to fizzle out before February, but instead the increase in demand has been sustained. He says current market conditions are characterized ongoing strong demand from De Beers’ Sightholders, with the second Sight of the year, opening today (Monday), expected to be similar in size to the January Sight, at around $500 million.
Diamond specialist Ehud Arye Laniado takes an informative look at the options for purchasing and selling rough diamonds, explaining the advantages and disadvantages of each. "Manufacturers essentially have two alternatives when it comes to buying rough diamonds. They can either buy directly from mining companies, or they can buy from others companies in the secondary trading market." Mining companies (producers) sell their diamonds either through a "sight" system or through tenders and auctions.
"The world’s two biggest diamond miners just sold $1 billion worth of gems and it’s making smaller rivals nervous," write Kevin Crowley and Thomas Biesheuvel for Bloomberg Business, and the size of De Beers' ($540m) and Alrosa's ($450m) January sales "far exceeded everyone’s expectations." One concern is that the sales were driven not by consumer demand, but rather by supply cuts last year that led to shortages and lower prices.
The unexpectedly sharp rise in rough prices and demand for goods in January, with De Beers and ALROSA together selling around $1 billion of goods and seeing demand for much more, got Charles Wyndham around to thinking about the sight system and how the industry's sales methods could be changed.
Small and medium diamantaires will have another opportunity to participate in the viewing for a rough diamond tender auction from 8-16 February to be conducted by De Beers Auction Sales, an online auction subsidiary of De Beers group, writes Times of India. The viewing will be held at the special notified zone (SNZ) in Mumbai. De Beers sells a little less than 10% of its rough diamond through its online subsidiary De Beers Auction Sales. The remaining 90% goes via long-term contracts that are sightholdings.
Diamond industry analyst Avi Krawitz addresses the bouyant rough diamond sales by De Beers and ALROSA in January, but notes that this has led many to wonder whether it is sustainable. To wit, does the seemingly improved sentiment truly reflect rising consumer demand, or is it another case of overreach on the part of manufacturers? For while "sightholders were quick to point out that the market mood is currently “much more positive,” it is important that stakeholders are aware of the factors that have underpinned the sudden turnaround in rough diamond demand."
Alrosa extended its January diamond offering and is set to sell about double the amount originally planned, boosting supplies to the market, according to two people with knowledge of the matter, write Thomas Biesheuvel and Yuliya Fedorinova for Bloomberg Business. Russia’s state-backed producer will probably sell $450 million to $500 million in its first sale of the year, said the people, who asked not to be identified because the information is private. The sale has lasted longer than the typical 10 days, the people said.
Diamond industry analyst Edahn Golan breaks down how De Beers arrived at its overall sales figure for its first rough sight in 2016: $540 million. Golan writes that De Beers has several sales channels. The largest is to their sightholders - contracted clients who each buy at least $15 million worth of rough diamonds annually - and the accredited buyers, which have second dibs on the offered goods. The current estimate in the market is that De Beers sold a little over $490 million worth of rough diamonds via the sightholder system.
Rapaport News reports that diamond mining giant ALROSA maintained rough prices at its January contract sale, stressing it sees no reason for prices to fall in current market conditions.
Anglo American & De Beers have announced the value of rough diamond sales (Global Sightholder Sales and Auction Sales) for De Beers’ first sales cycle of 2016.
Last week, the Times of India reported that small and medium diamantaires would for the first time be able to participate in De Beers' tender auction of rough diamonds and could now buy diamonds directly at auction from Diamdel (which is now called De Beers Auction Sales) at the India Diamond Trading Centre (IDTC).
In the traditional sightholder reception during the first De Beers sight of the year, De Beers Group Chief Executive Philippe Mellier said there were some encouraging signs in the diamond industry at the start of 2016, but cautioned that the recovery in the diamond sector remained delicate and that there was likely to be some volatility in 2016.
Bloomberg Business, citing three unnamed insiders, reports that De Beers cut rough diamond prices as much as 7% at its first sight of the year as the biggest producer works to counter slowing demand. De Beers plans to offer about $450 million of diamonds for sale, one said. A company spokesman declined to comment. Slower diamond jewelry sales in China and a credit crunch in the industry has sapped demand. That’s left cutters and traders with excess stockpiles, and forced the biggest producers to cut output and prices, writes Bloomberg.
Diamond miners are expected to have to offer more price cuts in 2016 to help the industry clear a backlog of stock and revive sales, according to sector experts, Financial Times reports. Lower prices and possible supply cuts will put further strain on the balance sheets of some miners including Anglo American, which owns De Beers, the largest supplier of rough diamonds by value.
Andrew England writes for the Financial Times that while the diamond industry is the backbone of the Botswanan economy - which has transformed from one of Africa's most impoverished to one of its richest, particularly since it convinced De Beers in 2013 to relocate its Global Sightholder Sales from London to Gabarone - it is in dire need of diversification. As Reuters wrote at the time, "The 2011 decision to move ...
The miner has set the dates for its sales next year, with the first one taking place from January 18 to 22 which will give an indication of sightholder demand following the crucial holiday sales season and ahead of the Chinese New Year.
At $70 million, De Beers' November sight was among its smallest ever, as the miner kept prices stable and allowed clients extra flexibility due to the slump in global demand. “It was a small sight as we expected because of the Diwali holidays,” David Johnson, head of midstream communications, told Rapaport. “We recognize that there are challenges in the industry and that we’re still in a destocking period. So our focus was to be flexible to meet sightholder needs.”
"A quick note before Sight 9 – it’s going to be small, but it will take place," writes Edahn Golan. "De Beers is adapting to the market, or as some may say, they are playing it by ear. The company is trying to meet the changing needs of its clients. Sadly, these changing needs seem mostly like detrition. According to one definition, detrition means a wearing away by friction. This seems to size up the current situation aptly.
The scuttlebutt surrounding De Beers' multi-tiered pricing mechanism and sweetheart deals for select sightholders at its October sight is nearly certain to shake up the rough diamond market and may potentially ignite a price war, writes Chaim Even-Zohar in his latest Diamond Intelligence Briefing, even though he acknowledges that this would be "self-defeating".
In what is a first for the firm, De Beers will allow its sightholders to turn down their entire November allocations until December in recognition of the intense pressure under which diamond manufacturers are working die to the soft condition of the market. “Further to discussions with several of you following recent cutting center visits, we are writing to provide an overview of some of the additional flexibility we will be putting in place for sights 9 and 10,” the company said in a note to sightholders obtained by Rapaport News.
In his blog "The Diamond Selling System Is Broken. Can It Be Fixed?" Rob Bates looks at the stammering rough selling system and discusses six alternative scenario's for selling rough and rough pricing, their pro's and con's and the likelihood of being adopted. Bates weighs the alternatives; using prices based on production (mining) cost, producers providing credit to clients, the option to let clients negotiate, steady prices throughout a contract term, selling rough exclusively through tenders and last but not least, more transparency on selling systems.
JCK's Rob Bates weighs in on the growing consternation over rumors of De Beers' supposed dual pricing system, which Charles Wyndham discussed at length last week.
Charles Wyndham, founder of PolishedPrices.com, addresses De Beers' "dual and covert pricing mechanism", which can only lead to a further lack of confidence in the sight system and an imbalanced playing field among their clients - though it is likely to drive prices down. Wyndham writes the last sight was initially thought to be around $150 million, but quickly increased to more than $300 million. "It would appear that at least 50% of the goods sold at the Sight ... were to a very limited number of companies" that bought diamonds at steep discounts.
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.
"An estimated 50% of goods were refused at De Beers Sight ending today"
@edahn - Edahn Golan
De Beers dropped its rough diamond prices by an average of 8 to 10%, causing mixed reactions among sightholders. The price cuts were obviously welcome, spurring demand for additional goods, but many felt that it was not enough. “Some boxes fell 10 to 20% so people requested more of those goods even though I don’t see profit there,” said a sightholder. “We all know how overpriced the goods were to begin with and we’re not seeing the pull through from the polished yet.” Lacking increased demand, Indian manufacturers are still operating at less than 50% capacity.
De Beers is slashing the prices of some goods at its latest sight, that runs from August 24 to 28, by as much as 10.7 percent, according to a report by Rapaport. Bloomberg News reported earlier this week that the miner had cut prices by as much as 9%. In addition to the price cuts, De Beers is permitting sightholders to defer pre-agreed purchase commitments in the face of weak demand globally for polished goods.
For the first time ever, and in a clear sign of the deep problems facing the diamond trade, De Beers is to allow sightholders to defer up to 75 percent of their allocations at its August sight. Sightholders reportedly rejected two-thirds of the goods offered at the July sight. This included deferrals, which lets the clients postpone their purchases for the next sight, or outright refusals of the goods.
The value of De Beers' July sight is estimated at just $200 million, according to Rapaport News, with the amount of goods left on the table likely to be more than 65 percent of the initial sight value. De Beers reportedly kept overall diamond prices and assortment quality stable.
Industry analyst Ehud Laniado takes stock of the strategies and scenarios available to diamond manufacturers that have lost the desire to manufacture in an unprofitable market. In the light of De Beers' dramatic Sight last week, where some sightholders reportedly declined as much as 60-90% of the offered rough while others turned down their entire allocation, a new reality has taken hold: the past sentiment of buying out of loyalty and an understanding that they will be compensated down the line is gone.
Interfax reports that according to Nikolai Afanasyev, the deputy general manager and sales and marketing director at diamond-cutter Kristall (Smolensk), a core ALROSA client and the sole sightholder for De Beers in Russia, Alrosa left diamond prices unchanged at its July sale. The company has not altered prices since May, when they underwent a 3 percent adjustment for the second time in the year, but the company did allow clients to decline to purchase up to 30 percent of their monthly allotment instead of 20 percent, Afanasyev said.
De Beers’s customers declined to buy about a third of the diamonds offered for sale this week by the world’s biggest producer, according to two people familiar with the process. Sightholders exercised the right granted by De Beers to defer purchasing about 25% of the stones on offer and rejected about another 10%, said the people, who asked not to be identified as the information isn’t public.
Andrei Zharkov, who was appointed in April, says no changes are needed regarding the miner's existing long-term strategy although there may be "manual adjustment" of some sales policy mechanisms to increase efficiency during slowdowns or at a time of rising prices. "I don't think it is now necessary to adjust the strategy and the long-term program of ALROSA. The company has taken certain decisions on strategic development and it is moving in accordance with them," he told Interfax on the sidelines of the St. Petersburg International Economic Forum.
Following the latest Sight week, the secondary market is still relatively quiet and the demand for goods is low. According to manufacturers, the rough is currently still priced too high. Most of the boxes were traded in the negative zone and some boxes were traded at lower prices in later trading sessions. The general mood in the market remains down.
As can be seen in the table attached, the many prices marked in red show a potential loss to the seller, or are selling at prices that don’t cover the cost of the goods.
The De Beers June sight closed with an estimated value of $550 million. Diamond prices were reportedly stable at the sight, while sightholders noted a slight increase in the box price of larger goods. Some added that De Beers also improved the assortment quality on those same boxes. Sightholder sentiment remained negative at the sight as manufacturers stated that polishing rough diamonds at current prices is still unprofitable.
PolishedPrices reports polished trading activity in the dealer market improved. Traders said prices in some areas of polished had stabilised, supported by shortages - mainly in higher qualities. Factory output in India is expected to stay low till the end of the month, when the holiday season there ends. The main focus is on the all important trade show in Las Vegas (May 29 – June 1). Meanwhile, the main polishedprices index ended the week virtually unchanged, opening at 131.10 on Friday, from 130.83 at the opening on Monday.
In his latest blog, Edahn Golan argues that despite the positive news on price reductions at the latest May sight, those reductions are not sufficient, not just because sightholders complain the reductions aren't going far enough. Golan believes a combination of moderate price reduction and supply decrease would work much better not only for manufacturers but also for retailers. He adds that the latest sight results demonstrate that De Beers will not decrease supply if it can help it, and the next Sight is expected to be a big one.
Bloomberg's Thomas Biesheuvel gives an overview of the developments at De Beers' latest sight. Fact is that diamond buyers are leaving stones on the table, says Biesheuvel, prompting De Beers, the world’s biggest producer, to back down on pricing.The reversal is a sign that Chief Executive Officer Philippe Mellier has gone too far with his four-year-old strategy to boost profit by demanding more money from the company’s select group of buyers. Anglo reaped the benefit as De Beers’s sales rose 11 percent to $7.1 billion in 2014.