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.