Philippe Mellier: ‘From now on, Diamdel will no longer sell boxes below DTC selling price’

Chaim Even-Zohar

At the last DTC Sight – which has been estimated as totaling $535 million – the DTC reduced rough selling prices by 3-15 percent, depending on the kind of goods. In some boxes, the assortments also deteriorated, so the price reduction may actually have been slightly more moderate.

Philippe Mellier, the Managing Director of De Beers, gave a very clear message to all DTC Sightholders: We have adjusted rough prices to reflect current polished values. Sightholders must not allow polished prices to slip further as there will be no additional reductions in rough prices!
The decisive (and needed) price adjustment combined with a strong message should restore market confidence and enable DTC Sightholders to strongly defend rough prices and ensure an upward trend of polished. The shortages in rough supply (and resultant polished) will not fail to have a positive effect on the direction of polished prices.
The DTC took a calculated risk: retailers might not understand that polished prices have now reached a base level from which there can be no further erosion; the price correction brings the rough in line with the prevailing (resultant) polished market levels.
Diamdel’s confusing message
And then, something unforeseen happened: Diamdel made two small, financially rather insignificant, rough sales considerably below the new (lower) DTC prices. I started getting near-panicky phone calls from Antwerp, and, later, also from Israel and India, from people who couldn’t understand the confusing message: Diamdel at its auction earlier this week sold one box (of -7/+2 goods) at 10 percent below the newly lowered DTC price. Apparently, there was only a single bidder! Another box (+9/-11) sold at -7 percent.
On Wednesday afternoon inside information was leaked that Diamdel is accepting pre-bids on a rejection box that is currently trading at a premium of 6 percent on the Antwerp market. Apparently, all the pre-bids (from which the 20 highest are invited to participate) are well below the new DTC selling price. How is it that DTC clients (and others) are expected to defend prices, but Diamdel is exempt from that request?
Mellier’s decisive action: no Diamdel sales below reserve price
We sent a query to De Beers Managing Director Philippe Mellier, asking him the following: Why is Diamdel allowed to destabilize the market against your specific requests to Sightholders? Why is a De Beers subsidiary destroying value – for itself, for your clients, for the market? We also told Mellier that Diamdel was making phone calls to clients urging them to place bids and, in so doing, giving off the feeling that the company was “dying” to get rid of its stocks.
Within minutes – and I am not exaggerating – Mellier gave me a phone call. He is at the moment in Namibia and from there it is, of course, difficult to follow market sentiments in Antwerp, Tel Aviv and Mumbai. But his London office immediately updated him – and he was well-informed.
Chaim, these sales involved very small boxes for very little money. But I agree, it absolutely gives the wrong market signal,” Mellier told me. “Diamdel’s Managing Director will be getting unequivocal instructions: Diamdel  shall not sell a single box below reserve price.”
When I asked him what the reserve price is, he answered: “The reserve price will be the selling price of DTC boxes.”
I then asked Mellier whether the auction that is currently in progress will be stopped. He then assured me that “the box will not be sold if it is below the reserve price.”  
Mellier’s commitment to De Beers’ pricing policy
The market knows that in the past few months Diamdel has made several sales below the DTC selling price (somewhere in the -3 percent to -8 percent range), which could be justified because these were closer to the real market value of rough. But after the DTC made its rough price correction, something that was done after considerable thought especially with regard to the ramifications, no further sales below DTC selling prices should be made. The message to the rough and polished market is clear and explicit.
Mellier’s unequivocal commitment that Diamdel will strictly implement the rough pricing policy set by De Beers and refrain from destabilizing the market (price-wise or psychologically) should be acknowledged and welcomed.
Diamdel and DTC International have different organizational structures – and the respective chief executives have different reporting structures. At the end of the day, Philippe Mellier has shown who is in charge. That, too, is a good message. There is no vacuum after the departure of Chairman Nicky Oppenheimer. 

Source Idexonline