Rough diamond market stand-off may yet prove costly – Insights

Avi Krawitz

Now that 2015 is coming to an end, mining companies are reportedly preparing to reduce rough diamond prices in January. Having held off from doing so in the fourth quarter of this year, the industry may be missing an opportunity to capitalize on an expected seasonal improvement in polished demand at the beginning of 2016.

After all, U.S. jewelers will, in theory, need to replenish goods they sold during Christmas while Far East jewelers will place orders around the Chinese New Year. But while De Beers and ALROSA rough prices remained stable in the fourth quarter and supply was constrained in the past six months, manufacturing was kept to a minimum. As a result, a shortage of polished diamonds is likely to develop in January which will constrain trading during what should be the market’s busiest period.

It would have been better to encourage rough buying by dropping prices in the fourth quarter. That would have motivated manufacturing activity so that polished production would be ready for the January retail stock replenishment – as has been the case in previous years.

Instead, diamantaires continue to see poor value in their December rough supply. The De Beers and ALROSA sales were again very small as they anticipate cheaper prices in January. Manufacturers turned to the rough auctions for supply while trading on the secondary market remained very weak.

De Beers estimated $180M sight

There was a sense of predictability about the De Beers sight as the miner kept rough prices unchanged and continued to be flexible in its supply. De Beers earlier told sightholders they could take what they want in November and December instead of adhering to their usual intentions to offer (ITO) allocation rules.

However, sightholders saw little profitability in the supply and bought the minimum required to keep their factories going. Based on conversations with sightholders and dealers, Rapaport News estimates the sight was valued at around $180 million.

People came to Gaborone with the intention to buy something but they also took full advantage of the flexibility offered by De Beers,” said one Antwerp-based sightholder.

Auction prices rise

Similarly, ALROSA’s sale was subdued as the Russian miner maintained prices and allowed clients to defer up to 70 percent of their allocations. While there was demand for some categories of rough for which there is a shortage of the resulting polished, manufacturers “are just not prepared to take a loss on the goods anymore,” another manufacturer stressed.

Dealers were particularly inactive and trading of De Beers boxes on the secondary market was muted, as was the case in November.

Manufacturers instead turned to the auction circuit saying there is better value in that rough than in the De Beers or ALROSA contracted supply. Smaller manufacturers also bid strongly since they couldn’t find sight goods on the secondary market.

As a result, auction prices firmed by an estimated 5 to 10 percent in December. Petra Diamonds sold 606,080 carats at its latest tender with just 3,200 carats remaining unsold. The company explained it achieved higher prices because of an improvement in the product mix. Grib Diamonds reportedly sold all of its lots on offer this month at prices back in line with December 2014 levels, market sources told Rapaport News. Similarly, rough from Angola was more expensive this month than in previous periods, sightholders noted.

Low manufacturing levels

Still, the volume of rough on the market is significantly below the level in previous years and manufacturing has, consequently, slumped about 30 to 50 percent from December 2014, one India-based sightholder said. If you consider the size of the De Beers and ALROSA sales and the amount of goods sold by the auction houses, there can’t be more than $600 million worth of new rough on the market, “which is nothing,” he claimed. Last year, the De Beers December sight alone was valued at $577 million, according to Rapaport estimates.

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Source Rapaport

Le coût des antagonismes sur le marché du brut pourrait être élevé – Perspectives

Avi Krawitz

Alors que l’année 2015 touche à sa fin, les sociétés minières se prépareraient à baisser les prix du brut en janvier. Après avoir retardé l’opération au quatrième trimestre de cette année, l’industrie passe peut-être à côté de l’occasion de capitaliser sur une amélioration saisonnière attendue de la demande de taillé, début 2016.[:] (more…)