IIJS Premiere 2021 concludes successfully; generates around $6.75 bn business

The 37th edition of IIJS Premiere 2021, the flagship trade show of the Gem & Jewellery Export Promotion Council (GJEPC) of India, held in Bengaluru concluded successfully with the participation of 1,300+ exhibitors and over 21,000 visitors...

Today

Henan LiLiang Diamond issues public offering; listed on the second board

Henan LiLiang Diamond Co. Ltd issued its initial public offering and was listed on the second board recently as announced by Guangzhou Diamond Exchange (GZDE), an international diamond trading platform serving as a gateway for the diamond industry...

Today

Gareth Penny, Norilsk Nickel Chairman arrives in Norilsk

Gareth Penny, Chairman of the Board of Directors of Norilsk Nickel arrived in Norilsk to personally get acquainted with the progress of work on the company’s most important projects in the Norilsk Industrial Region (NIR).

Today

Armenia puts up for sale more than half of valuables from state reserve

On September 24, the Government of the Republic of Armenia approved the sale of the most illiquid valuables stored in the vaults of the State Treasury of Precious Metals and Stones supervised by the Ministry of Finance of Armenia. The auctions will take...

Today

Caledonia Mining acquires new gold mining project in Zimbabwe

Caledonia Mining has entered into an agreement to acquire the mining claims over the Maligreen project, a property situated in the Gweru mining district in Zimbabwe from Pan African Mining for $4 million.

Today

Testing Sightholders

18 december 2012

Often, the manner in which the diamond industry starts a year proves more influential ‎than the weighted importance it gives the end of year holiday season, Avi Krawitz says on www.diamonds.net in his article published on December 14. Granted, they are ‎interconnected, with the level of restocking naturally dependent on retail sales and prices ‎responding to the respective supply-demand dynamic. ‎

While that is certainly true for polished, there is a sense that the rough market has other ‎factors to consider. Applications for goods in the next intention to offer (ITO) cycle, that ‎begins on April 1, 2013, is one such factor. This week’s announcement by De Beers that ‎its non-sightholder auction clients can apply to receive a sight in the next ITO is another. ‎

The announcement serves as a reminder to sightholders that their supply is not as secure ‎as they thought. They will have to consider their 2013 ITO’s as they buy expensive De ‎Beers rough over the next three months. ‎

Rough prices remain sightholders’ primary concern with De Beers goods currently said to ‎be about 10 percent above the rest of the market. Speculation that De Beers is mulling a ‎January or February price increase was therefore understandably met with unease. But ‎sightholders, still struggling to profit from manufacturing, will be loath to reject over-priced ‎goods while their future supply is being considered.  ‎

The past year has been especially tough for manufacturers as they have consistently ‎bemoaned weak polished demand, high rough prices relative to polished, consequent low ‎profit margins, if any at all, and often grudgingly accepted their contracted supply. ‎Thankfully, sometimes they did not, forcing De Beers and ALROSA to “allow” them to ‎defer their sight allocations in the second half of the year. Ultimately, market forces ‎enabled a rough price downward correction during the third quarter. ‎

But those rejections may yet come back to haunt sightholders in the next ITO cycle, that ‎begins on April 1, 2013. De Beers spokespersons told Rapaport News that the company ‎has the contractual right not to re-offer a particular box within an ITO if a sightholder has ‎demonstrated no, or very limited, demand for that box over the course of ‎a selling period. ‎De Beers also has the right to terminate a supplier of choice (SoC) contract if a ‎sightholder has ‎demonstrated little or no demand for any of its ITO goods during a selling ‎period, the spokesperson explained.  ‎

Such a prospect may therefore spur some inflated sightholder demand in the next three ‎months, especially as they still face competition from De Beers non-sightholder auction ‎clients applying for a 2013 sight. ‎

Clearly, supply, and sightholder status, is subject to availability. Given De Beers low ‎production strategy throughout 2012, one shouldn’t expect too much excess supply to be ‎available for new sightholders. De Beers continues to stress it is experiencing shortfalls ‎against the value of the ITO’s indicated at the start of the ITO period in April 2012. ‎Furthermore, the 2013-2014 ITOs are expected to be smaller than those published for the ‎current year due to reduced sightholder demand.   ‎

At this week’s sight, sightholders again noted expensive De Beers supply and accepted ‎their boxes deeply concerned about their ability to make a profit off them, even as some ‎margin has emerged in the polished market. De Beers has argued in the past that it is the ‎nature of contracted supply to be comparatively expensive in a weak market and provide ‎better value than other suppliers in an uptrend. ‎(A full report on the December De Beers sight will be published early next week).

That may be true. But for now, De Beers rough is considered expensive and has been for ‎most of 2012. While ALROSA reduced supply in previous months and is holding ‎significant inventory of rough, reports from last week’s ALROSA sale indicate some ‎improved value in the Russian miner’s goods. In addition, demand at rough tenders ‎increased since October and manufacturers are seeing better value there.

However, overall rough market caution persists and dealer demand is weak, partly ‎stemming from the lack of manufacturing during November. Indian factories, which are ‎now slowly ramping up post-Diwali production, have enough goods in backlog to satisfy ‎their immediate needs. But it seems their bigger concern is their prospects for January, ‎as they try to salvage a profitable start to 2013. ‎

They’ve been encouraged by recent signs of polished stability on reports of satisfactory ‎U.S. holiday demand. But that has also fueled speculation regarding a potential De Beers ‎price increase. Sightholders responded that if an increase is implemented they should ‎leave goods on the table. But it is unlikely they would dare reject goods at this stage as ‎they consider the year ahead, and having done so just a few months ago.‎

Even at a time when demand is weak and profitability low, competition among ‎manufacturers to source rough diamonds is as intense as ever. Of course, these ‎opposing trends reflect the short- and long-term aspirations of businesses within the ‎manufacturing sector.‎

However, to enable a successful 2013, manufacturers will need to better manage their ‎insatiable pursuit of long-term rough supply. Given the length of the current downturn, ‎manufacturers may be better off focusing on short-term market dynamics as a means to ‎ensure the long-term sustainability of their businesses, rather than long-term supply at the ‎expense of seemingly short-term profits.  ‎

Too often they are sold by the promise of rising diamond prices with an ever-widening ‎gap between high rising demand and subdued supply. While that may effectively sell the ‎industry’s return to potential investors, it means little if such gains are achieved at the ‎expense of manufacturers’ profit. The biggest challenge for manufacturers in 2013 will ‎undoubtedly be how to ensure sustainable profit margins, much as it was in 2012 with ‎little success. The first test will present itself at the first few sights of the year.