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Trooping Value

20 june 2012

Curiously, well I find it curious, I greatly enjoy the pomp and circumstance of our royal occasions in England, Charles Wyndham says on

All the guffaw about the Queen’s jubilee produced some absolutely wonderful theatre.

Indeed, I do not think that anyone can do Kitsch as well as the British.

I had to chuckle when watching the Trooping of the Colour to mark the Queen’s official birthday I heard the news that the Queen had awarded the Prince of Wales the highest ranks in the armed forces. 

I cannot recall all the burble but he seemed to be Field Marshall of the Army, Lord High Admiral of our Fleet etc etc, doling out gongs is all part of the pageant.

You might be interested to hear that we now have more Admirals than ships in the British Navy, a navy that not that long ago was twice as large as the combined size of the next two largest fleets, and at one time employed 250,00 people.

Times have changed, but the theatre goes on and I hope it will go on for long time.

In some ways I could say much about our diamond business, or to be more precise, times have changed and I perceive that some, not too many of course, might actually be noticing it.

It is not as if we are in a booming market, every day, as the world-wide financial slowdown and uncertainty grips the headlines, more unsettling news filters through in our own little neck of the woods.

The latest BHP tender in Antwerp saw a sharp drop in prices around the 6% mark.

Uncorroborated reports are that Alrosa has dropped its prices sharply, in excess of 10%.

The world of luxury is taking a bit of a hit, look at the latest expectations from Mulberry.

I hear that there are substantial lay offs in the Swiss watch industry as demand from the Far East in particular has dropped sharply. The watch industry seems to have become quite a useful general bell weather for luxury in general and diamonds in particular.

De Beers took the ‘bold’ decision to increase prices recently, just as the market was slowing down and at this last week [June 11-17] sight all the talk was about the game of Chicken that was going on between De Beers / DTC and its customers as to whether the DTC would reduce prices or whether Sightholders would defer or refuse goods.

Initial reports are that DTC dropped prices a smidgeon and large volumes of goods were deferred, however the outcome is not what I am particularly interested in.

What I found of interest was the heated discussion amongst some Sightholders that it was essential that De Beers did not drop its prices, but also ensured that only a minimal sight was sold.

In other words, the argument was that De Beers should revert to what was its traditional role as the paterfamilias of the industry.

I have long argued against such a role for De Beers or any mining company, for whom I see their role as selling their production for the highest price on the day that they can get.

The success of such a policy has been clearly demonstrated by BHP and its sales by tender, compared to the traditional DTC methodology.

Be it good times or more importantly through the last shock, BHP figures are so strikingly better than the De Beers results that it is pretty embarrassing for the latter.

De Beers has for ages completely lost it on pricing to the point that they probably would have done better using a dartboard to make their choices as to increase or lower prices.

Most of the time DTC boxes have carried eye watering premiums, but certainly not at the moment.

So the golden oldie record is brought out again that Sightholders should ‘give back’ some of the money that has been donated to them through the munificence of the De Beers management.

Pretty scratchy as an argument.

The point is that the diamonds should be sold at whatever the current market price maybe.

But that is not what has happened and is unlikely to happen in the short term, so within the context of a cockeyed system, it could be argued that it would be wise if De Beers / DTC did hold prices in the exceptional circumstances of today and recognise that this will inevitably cut their sales sharply.

It becomes a ‘cost’, what should be an unnecessary cost.

Another point to emphasise is that if De Beers sells it diamonds for the true market price and stops doling out absurd premiums on boxes, then it cannot expect or if it does expect it will be rudely awakened to the fact that Sightholders will not go down the additional costs that De Beers demands as part of its Supplier of Choice.

Also, producers will see all the cutting activity evaporate in their countries unless they provide alternative subsidies, as cutting in producing countries is simply not cost efficient.

So De Beers and its producers have still got the same choice to make as to whether to stick with the old or move on.

At the beginning I did mention that there were signs of change creeping in.

The fact that Alrosa is doing the exact opposite of De Beers would have been pretty unthinkable only a short while ago.

The other twinkle in the sky is what I heard at the RBC Diamond Conference in London when a senior De Beers executive confirmed, as if we did not know, that diamonds are an asset with value and even went on to say that ‘the store of value is part of the Diamond Dream.’

So through the contradictory statements by De Beers executives as to whether diamonds are a commodity or not, it is clear that reality is slowly sinking in.

The next question is whether the company will be prepared to accept the logical consequences of this reality.