Diamond miners, if they have the option, won’t decrease prices. It’s not as obvious as it may sound – many will prefer keeping the goods than lower prices. The benefit of what is referred to in the market as having “a strong hand“.
That is why after offering to defer up to 50 percent of Sightholders’ July allocations, and coupled with rejections and buy backs, the DTC July Sight was a small one, estimated at less than $400 million.
Full categories of goods were not sold at the last Sight: the Small Fancies, Cold & Brown Clivage and Fancy boxes. In addition, several of the Fine boxes, such as the Collection goods, and a number of the Colored boxes were not sold.
The prices at the DTC were not change significantly. Some boxes are up, others are down but the general policy of “price adjustments” remains in tact. From DTC’s perspective, it seems, it’s preferred to decrease supply than to decrease prices. The Colored Z 4-8grs box, for example, sold for $672.83 p/c, a 3.6 percent decline; however, it mainly reflected the lower composition of the box.
While prices were rather stable at De beers, buyers are getting the goods at a discount. These include the Chips 4-8 gr, which DTC listed at $871.52 p/c (+2.3% from the previous Sight), the Makeables High 3 gr +7 (DTC: $180.16 p/c, -8.4%) and the Commercial 2.5-4 ct box (DTC: $2,149.85p/c, -2.1%) – all trading at below the price Sightholders paid.
Further proving that the DTC is expensive these days, at BHP Billiton’s tenders prices are down nearly across the board.
The 4-8 grainers declined between 1.2 percent (4-8 gr MB Fancy, $505.08 p/c) to 8 percent (4-8 gr Z White $1,111.00 p/c), although 4-8gr CL/Lo White increased 0.7 percent to $204.81 p/c.
The declines at BHP better reflect demand in the market. The background is simple – on the back of runaway polished prices in the second quarter of 2011, prices of rough also increased. When the polished price bubble burst in July 2011, rough prices at DTC and Alrosa were not lowered.
Pressure to lower polished prices held until recently, when manufacturers realized that the only way to generate a turnover was to let go, and bring down prices, a move legitimatized by a couple of large – and stable – Indian manufacturers. The rest of the Indian market followed.
The resulting margin squeeze meant that expenses, mainly rough, had to be brought down. The result is less buying from DTC and Alrosa, and reduced prices at BHP and many of the mid-sized suppliers.
The decreased supply to the market was a welcomed move by many, mostly Diamond Trading Company (DTC) Sightholders. They did not like losing 5-15 percent on some of the goods.
More importantly, the market has no need for much rough these days, because of limited polished diamond demand and large inventories.
Falling polished prices require that rough diamond prices adjust to the market realities. As discussed in a separate column (Breaking the Concrete Floor), rough prices outpace polished and a correction is needed.
As the just released Kimberley Process figures show, in 2011 production declined 3.4 percent but the price leaped 26.5 percent. This staggering price increase was not reflected with a similar increase in polished prices, which were up 17 percent in 2011. The need for lower rough prices is clear.
Therefore, we expect further adjustments to rough prices until a new balance is found.