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De Beers DTC November sight estimated at $325M

16 november 2009

Diamond manufacturers reported higher prices during the November sight period, leaving many concerned that the market is being driven by artificial forces, RAPAPORT reported. 
“It’s like trading in futures at the moment and people are buying rough with the expectation that prices will rise further,” said one Diamond Trading Company (DTC) sightholder, who estimated that DTC prices rose an average of 5 percent at the November site last week. 
The DTC's sight No. 9 had an estimated value of $325 million, which was roughly the same as that of the No. 9 sight held in 2008, following the collapse of Wall Street. But this sight was in line with De Beers pledge that the final two sites of 2009 would be smaller. Reports from the sight indicated high premiums on boxes and strong demand for the amount of goods on the market. DTC reportedly adjusted its prices and assortments accordingly. 
DTC spokesperson Louis Prior explained that the final two sights of 2009 would be smaller because De Beers still has goods that need to move through production, as it curbed output from late 2008 through the second quarter of 2009. De Beers has since started to ramp up its production again and is expected to finish the year with approximately half its 2008 total. DTC sales have proportionally decreased by an estimated 51 percent to $2.9 billion for the year to date, according to Rapaport records. 
Another DTC sightholder observed that prices for cleaner goods rose by about 5 percent and by as much as 8 percent for piquet goods. He stressed that the price hike surprised him as, based on recent meetings with DTC management, he had understood that prices would be kept stable until after the U.S. holiday season. Similar price increases were reported from the recent Rio Tinto sight and BHP Billiton tender. Despite these increases, there were willing buyers for the goods — leaving some perplexed by what exactly is driving market demand.
One Rio Tinto customer stressed that while there is a limited supply of rough and some shortages in the market, he doesn’t perceive the demand from consumers as a justification for the price increases. Most of the manufacturers that spoke with Rapaport News reasoned that the market is being strongly influenced by the expectation that rough will rise again in 2010, “so sightholders don’t want to miss the boat,” said a DTC sightholder. 
They also noted that the resumption of manufacturing in India, after it had been cancelled there for much of the first half of the year, was fueling demand. “Companies have invested to resume manufacturing again and have to be aggressive in doing so,” the sightholder explained. “They’ve rehired workers and got their systems going again, so there is pressure to feed the factories. They need a certain volume of stones to sustain their operations and that allows DTC to push prices up.” 
One market observer said he felt the banks were also playing into mining company interests, as they have to maintain their large credit facilities to big manufacturers “who, in turn, have to do the turnover, so they buy the rough at any price.” 
“We will face another catastrophe if it continues like this,” he warned. “People are borrowing more than their turnover, while the banks can’t afford to write off a business which owes $600 million.” 
Still, most agree that there is some movement in the polished market, which — to an extent — is helping to push demand, as retailers have depleted the stock that they held for much of the year and are buying again. 
Prior added that sightholders appeared to be focused on selling for the Christmas season and that there was an “all-round positive mood” at the November sight. “The feedback we’re getting from sightholders is that they’re expecting sales to be stronger than last year and we see that among retailers participating in the Everlon Diamond Knot program,” Prior noted. 
De Beers is expecting Christmas and fourth-quarter sales to at least be in line with the 2008 season, but has been hesitant to offer clear forecasts for 2010. “For next year, we will continue to work according to supply and demand. It all depends on how good Christmas will be and how good sales out of India and China are,” Prior explained. 
Sightholders also appear to be waiting out the season before setting their strategies, but indicated that they are expecting similar trends of higher prices and supply shortage. “We expect more rough to come onto the market next year, but it’s very much a question of how much is needed,” stressed a market observer.