De Beers January sight estimated at $550M

Avi Krawitz

Prices stable as premiums improve

De Beers January sight had an estimated value of $550 million as the company ‎continued to limit supply. Prices were basically stable with slight changes made to ‎assortments. ‎

The mood remains cautious, according to Nigel Simson, the head of ‎beneficiation at De ‎Beers. “The market is watching demand ‎levels and the level at which retailers are restocking and they’re trying to get a sense of ‎where polished and rough prices.”‎

Sightholders noted that demand for De Beers goods on the secondary market improved ‎slightly in January due mainly to a decline in supply during the past year. As a result, ‎premiums rose slightly in January to sell on average at around 5 percent above list. ‎Prices at other suppliers have also increased marginally with reports from the BHP ‎Billiton January tender indicating increases of around 2 percent to 3 percent on average. ‎

De Beers production fell 11 percent year on year to 27.875 million carats in 2012 as the ‎company focused on waste stripping and maintenance and experience operational ‎difficulties, during the year. ALROSA expects production to be in line with 2011, but it sold ‎approximately $230 million worth of goods to Russia’s state repository, Gokhran, in 2012. ‎

The January De Beers sight was smaller than usual for this time of year and its rough supply ‎remains well below levels forecast one year ago. There was very little ex-plan – goods offered in addition to sightholder applications – supplied at the sight, and few deferrals. ‎Simson explained that De Beers has maintained its policy to allow sightholders to defer ‎one box per half year.      ‎

The January sight is usually a relatively large one as manufacturers ramp up their ‎operations to satisfy new demand from retailers restocking after the holiday season. ‎

Simson noted that retailers are not restocking at the same level that they used to. He ‎added that, while the final fourth quarter Christmas season results are still pending, the ‎markets appear to have stabilized in the past few months. The RapNet Diamond Index ‎‎(RAPI) for 1 carat certified diamonds was basically stable in January having declined by ‎‎12.5 percent in 2012.  ‎

One sightholder said he expects the current rough shortfall to affect the polished market ‎in a month or two.‎ ‎“You don’t see shortages in the polished at the moment but I think you will start to see it in ‎the next two to three months because the rough is not easy to come by,” he explained. ‎

Others observed that manufacturing levels have returned to regular levels as workers in ‎India have returned from their Diwali and wedding season breaks, which has also ‎influenced an increase in rough demand. One India-based sightholder added that he ‎expects manufacturing to reduce slightly in the coming months because of the lower ‎supply.‎

Despite the improvement in demand, most noted that there is still no real excitement for ‎De Beers boxes with demand being stimulated by the lower production that some ‎suggested has created artificial traction in the rough market. “It’s still difficult to make ‎money from manufacturing and I think this situation will continue for a while,” a sight ‎participant said.    ‎

Varda Shine, De Beers vice president of global sightholder sales, expects that prospects ‎for 2013 have improved due to a more favorable pipeline and demand dynamics. She ‎cautioned, however, that liquidity will continue to be a challenge for sightholders and ‎urged them to develop a different approach to financial management and banking ‎relationships going forward. ‎

‎“Transparency will be crucial as banks will look to minimize their risk profile and comply ‎with new banking norms,” she said at the sightholder reception in London. “Operations will ‎need to be rationalized and finance focused squarely on diamond operations in order to ‎reap the full benefits of the undeniably huge long term opportunities in the industry.”‎

The annual January reception was the last to be held in London for its sightholders as De Beers sights ‎are scheduled to move to Gaborone, Botswana in late 2013. ‎

Source Rapaport