Sight report, October 2014

H. Goldie and Company Limited

Total goods sold this month are believed to be in the region $465m, which included a range of Ex Plan material. The October level represents a relatively small Sight that reflects the forthcoming holiday period in India and the deferrals that were made as a result of factory closures.

Prices broadly remain unchanged with small reductions in certain boxes in the Fine, Commercial High and Rejection areas of between 1- 4%. Adjustments where applicable appear to be targeted to specific boxes maintaining the De Beers policy of continuous fine tuning to reflect market movements.

In terms of intakes, this months produced an improved range of presentations which resulted in price increases on paper to many of the boxes. These increases were generally justified by manufacturers who in most cases saw the improvement in either clarity, colour or average sizes.

With the approach of the Diwali holidays some Indian Sightholders chose to defer some of their boxes until next month.

Some boxes were refused, but we believe this was only in the region of $15-20m in total. Although Sightholders were invited to apply for additional goods during the Sight week there was very little interest overall and very little if any, was recycled.

The issue however for Sightholders remains the current market situation; in the past month polished prices in general have softened by around 7% and rough by around 10%, meaning that while Sightholders appreciated the reductions made in some of the boxes, the market had already corrected downward leaving  the same scenario of insufficient return in manufacturing.

The trading markets have opened with virtually all boxes being offered at prices below cost, with terms, however currently there is very little appetite to buy. Tender prices over the past weeks have fallen by between 5-7%, a trend which is expected to continue through the coming weeks.

Liquidity has for some months been a major talking point for the industry and there remains significant concern over the current funding situation. With the Antwerp Diamond Bank (ADB) withdrawing from the industry, companies are faced with the prospect of repaying outstanding loans within a relatively short period, and fear that other banks with whom they currently enjoy a credit facility might potentially reconsider their own lending levels in order to protect their exposure to any one particular business. Other banks such as Standard Chartered and ABN Amro have also indicated their intention to reduce their risk and exposure to the business. It is also generally accepted that the cost of finance will increase in future.

A concern raised this week has been the fact that the October Sight will in most cases remain in the safe until after the Diwali holiday. When the factories do reopen it is likely they will operate at about 50% capacity while workers return, and with the November Sight arriving in addition to the sales from other producers, liquidity is going to be stretched further.

Although rough stocks are below average, polished stocks are high in the mid-stream. The polished market continues to weaken and with softening rough prices and liquidity constraints the industry is bracing itself for a challenging period when the factories reopen after the Diwali holidays in mid-November.

It was reported this week in the Indian press that Indian traders are offering discounts of between 3-7% on bulk polished businesses +0.50 points ahead of the Diwali buying period in India in order to be in a position to repay bank loans.

Mike Aggett, Managing Director

Source H. Goldie and Company Limited