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DTC June Sight Estimated at $425M

16 june 2009

The Diamond Trading Company (DTC) June sight estimate came in as the largest so far this year at $425 million. While sightholders were clearly in the mood to buy rough, few could explain the surge in demand as trends in the polished market remain weak, RAPAPORT reported.
“Dealers came back from JCK Vegas with mixed feelings and didn’t give the impression that the U.S. market has made any come back to justify this level of buying,” said one sightholder. Another De Beers customer noted that at 2008 prices, the sight would have been close to $700 million meaning that the volume of rough sold was about the same as a year ago. “It’s also about five times the size of the January sight and I just don’t see that the demand for polished has increased by that amount.”
DTC spokesperson Louise Prior said the demand is being pulled by both the polished market and rough production trends. “We see a pull through of polished in the pipeline where retailers are replacing depleted stock,” she said. “There is also the aspect of less rough on the market as a contributing factor.”
Others agreed that the absence of ALROSA and ENDIAMA (Angola) goods in the market was helping spur demand for DTC rough, as those two companies have been selling to government agencies during the economic downturn.  Some felt that sightholders were hurrying to buy rough while it was available, as they were concerned that shortages would develop due to the recent De Beers freeze on production.
One sight participant said he felt the higher level of buying was geared towards dealers in rough rather than in the interest of the manufacturer, particularly “as prices [for rough] do not reflect what’s happening in the polished market.”
DTC June prices were relatively consistent to a month ago, with some adjustments on the smaller, lower quality goods. Rough prices outside the DTC system have shown sharp increases in the past month at tender and in the open market. A Petra Diamonds representative told Rapaport News that prices increased 15 to 20 percent at its recent tender while reports from this past week’s BHP Billiton sale indicated that prices “went sky high.”
 “DTC prices are about in line with the rest of the market now. In fact, DTC is probably one of the better buys around right now for rough to rough dealing,” said a sight participant. “But the situation is not good for manufacturers as no box is yielding a profit of more than 10 percent for polished.”
 “We are back to the situation we had in July 2008 when you got the impression that prices were in line with each other but manufacturers couldn’t make a profit,” he added, expressing his concern that the market may be heading for another downturn.
Prior said that DTC was “cautiously optimistic” about its prospects for the coming months. Most appeared confident that the higher demand would be maintained through July and August but would slow thereafter as ALROSA starts selling again and after the Diwali season in India.
De Beers appeared more confident of its position than at previous sights putting a 30 percent limit on the amount that sightholders could reject, whereas during the months of great weakness in January through May, they allowed the whole box to be rejected. There was also application for an estimated $100 million of ex-plan goods – excess items not originally in sightholder applications – which the company did not fill.
De Beers reportedly told sightholders it would like to see stability at a lower level of sales for the remainder of 2009, setting it up for a better 2010. The company has set a rough sales target of $3 billion for this year. Sales are down 65 percent to approximately $1.09 billion through the first five sights of the year, according to Rapaport estimates. Accordingly, the remaining five sights of the year would need to value at an average $380 million for De Beers to achieve its goal.
For now, however, the demand continues to rise with applications for the July sight said to be higher than the $700 million applied for in June. Sightholders nevertheless appear to have the same goal of ‘lower level stability.’ “We saw a bit of hype at this sight and I don’t believe DTC has the goods to sell at these levels in the coming months,” a sightholder said. “If it continues to rise, there will be another downturn.”