DTC to Allow Deferments as Rough Market Chokes

Avi Krawitz

The Diamond Trading Company (DTC) has informed its sightholders that they can defer goods at the next DTC sight as diamond cutters face tight liquidity and low profit margins.

Sightholders may reschedule up to 50 percent of the total value of the July sight in-plan target to any other sight in the current intention to offer (ITO) period that ends March 2013.

DTC explained in a memo to sightholders obtained by Rapaport News that the move came in response to sightholder feedback that applications for goods at the upcoming July sight are in excess of their current requirements.

Reports from the previous DTC sight, that took place during the week of June 11, indicated that sightholders deferred goods due to diminished demand for rough and as DTC prices remain high. DTC made slight adjustments to prices and assortments at the sight that enabled the boxes to maintain their value. Trading in the secondary markets has been slow in the weeks following the June sight with most DTC boxes selling at list or below list

Des Kilalea, an analyst with RBC Capital Markets, said he expects rough prices will remain under pressure in the near-term, given the lack of liquidity in the cutting centers.

Evidence is that the rough market remains choked with goods which are probably too expensive to make much margin on at present,” Kilalea wrote. “Diamantaires are facing the twin pressures of slow sales of polished stones and rough prices which seem out of kilter with polished. Add to that tight liquidity and a slowing economic outlook for China and it is clear that the industry is in a difficult phase right now.”

Kilalea added that while larger producers have the option to defer sales, smaller companies are less flexible due to project funding.

RBC estimates that De Beers sales, including at DTC, its retail division and its industrial synthetics business, fell 15 percent year on year to around $3 billion in the first half of the year. Rapaport estimates that DTC sales declined by 19 percent to approximately $2.83 billion during the period.

Kilalea said he expects continued uncertainty for the diamond market in the second half of the year, which would affect sightholders’ ability to take the rough they are currently postponing at later sights.

How sightholders will accommodate the additional rough, which they deferred in June and that they are likely to reject in July will be dependent on the outlook for [the second and the prices at which the rough is available,” Kilalea wrote. “So it is hard at this stage to see sightholders willingly taking more rough post July unless the world looks healthier and rough prices are more economic to process.”

Source Rapaport