Sight report, February 2015

H. Goldie and Company Limited

As was broadly expected the presentation of the February Sight was similar to last month with only targeted and minor price adjustments made to a few boxes. We understand the February Sight was announced in the region of $630m.

In recognition of what is still a very delicate rough market De Beers gave Sightholders the chance to yet again defer up to 25% of their ITO, but this month did sell a limited amount of Ex Plan rough in areas where there was specific demand. The uptake by Sightholders on the offer to defer boxes was less than in January.

In terms of the reaction to the Sight it should be said that the overall mood amongst SIghtholders was slightly improved, however this was more as a result of no further significant deterioration in the general market over the past month coupled with a marginal improvement in rough demand, as opposed to an improvement in the boxes themselves, and more importantly their profitability, which was generally see as similar to last month. A few +4gr boxes producing VS and better polished were seen to be marginally improved in their composition, whereas the lower ranges of rough remained unchanged.

The fact that the industry has now been enduring very difficult trading conditions for some eight months should however put this small improvement in mood into perspective. The industry is still in a very delicate position and is by no means at a point where Sightholders feel the difficult days are behind them.

It has only been the combination of reduced polished production in India since Diwali 2014, coupled with responsible behaviour from the leading producers in terms of sales levels over recent months that has resulted in more stable polished prices, and created shortages in certain polished categories which have led to some improved demand. However demand in general remains well below expected levels for this time of the year, and the ongoing disparity between rough and polished prices remains a major cause for concern. Many Sightholders believe that it is only these regulatory actions that have alleviated further reductions in polished prices.

Although expectation is relatively low, the industry now awaits the outcome of the Chinese New Year sales and the Hong Kong show to see what level of demand might be generated, and there is a feeling amongst many that disappointing demand might lead to further downward pressure on rough prices.

Rough stocks remain low in the centres and as a result we understand a relatively smaller number of boxes were refused compared to the last 2 Sights.  Cheaper ranges in particular remain popular as vehicles to maintain factory production, while 4-8gr goods are less in demand as a result of the slower polished sales.

At the end of the Sight week De Beers took the opportunity to respond to certain requests for “additional goods” and were able to recycle many refused boxes to other Sightholders.

The March Sight, the final one in the current contract, will be important. It is likely to again be fairly sizeable as a result of deferrals and Sightholders will be hopeful that increased indications of restocking demand will be forthcoming from the markets, alleviating any further negative impacts on the industry.

A number of Sightholders commented that with the prospect of ongoing economic challenges in almost all consumer centres it is realistic to assume that any real improvement in the industry’s fortune is unlikely to come before the mid-year at the earliest. Until that time it is hoped that moderate production levels and controlled stocks will create polished shortfalls and stimulate renewed retail demand, bringing both confidence and a greater equilibrium between rough and polished back to the industry.

Mike Aggett, Managing Director

Source H. Goldie and Company Limited