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De Beers may put up $ 1 billion worth of rough for sale at its May sight

28 april 2015

De Beers may put to sale rough diamonds worth up to $ 1 billion at the upcoming May sight, several sources in the diamond market reported.
According to observers, the company has been offering higher amounts of diamonds to its sightholders for the second consecutive month. Last March, De Beers marketed rough for more than $ 700 million, without lowering the level of prices. The large quantity of goods offered at the March sight was due to the added amounts rejected by sightholders in January. However, in March De Beers customers could not buy all the lots that are now likely to hit the market in May.
"The sightholders of De Beers found themselves in a difficult situation in March, when De Beers, in spite of the weak market, offered more than $ 700 million worth of rough for sale. It was the last sight of the three-year contract period, and the supply volumes of new contracts were dependent on its results. Many customers were then forced to take diamonds at a loss, but even despite this zeal the level of rejection exceeded 40% - the customers simply had no money to pay," one of the sightholders said.
Market players familiar with the preparations for the trading session believe that De Beers will not reduce prices at the May sight for the same reason. The sight scheduled by De Beers for May 4-8 will be the first trading session of the new contract period 2015-2018. "The most we have to count on is the correction of product mix. This is the first trading session of the new period, and customers admitted to the list of sightholders will have to pick up everything to confirm their reputation," one of them believes.
Market players are concerned about the large supply of rough. Demand for rough has been weak for the entire first quarter due to falling prices for polished goods and credit problems in the manufacturing sector. In January and February, De Beers slightly lowered rough prices keeping them flat from March onwards. According to one customer, "prices offered by ALROSA are just as high, but the Russian company sells this year less than before not to overload the market."
In the opinion of observers, the trading policy pursued by De Beers is now more focused on maximizing profits, rather than on maintaining the market. "Sightholders are held hostage to this situation, they have to agree to knowingly unfavorable terms, so as not to lose access to rough,” one of the industry players says. “However, this cannot continue indefinitely, since the strength margin of diamond manufacturers is insufficient. If De Beers will not start to reduce the volume of sales, the market may face a new global crisis similar to the one of 2009."
According to experts, sightholders collectively rejected one quarter of rough offered by De Beers for sale in the first quarter. These were rough diamonds worth about $ 500 million. The company has already announced its plan to reduce production from 32-34 to 30-32 million carats this year. However, nothing has been said about a cut in sales, which means that the additional $ 500 million worth of rough goods may well be on the market this year, observers believe.
The diamond community is also wary in view of a possibility that Russia may increase its rough sales as well. "Usually, major producers adhere to a single vector. De Beers has been offering large amounts of rough at its recent sights. There is an understanding that certain amounts of rough will be offered by Gokhran, the Russian State Repository. So far, ALROSA has been containing its supply, but if the rest of market players do not act likewise, then this restriction of supply may become meaningless to Russia. And in this case any further development of the market situation will be impossible to predict," one market player said.

Alex Shishlo, Editor in Chief of the European Bureau, Rough&Polished