Sightholders welcomed De Beers’ decision to lower prices at this week’s rough-diamond sale, but noted that further discounts were necessary to improve profits in the manufacturing sector.
The company reduced prices of higher-end goods by 5% to 7% at this week’s November sight, and offered deeper cuts in cheaper categories, sources reported. The move was a response to uncertain polished demand and slim midstream margins, which has impacted manufacturers’ appetite for rough.
“It’s not nearly enough, but it’s in the right direction,” a sightholder specializing in larger goods told Rapaport News.
In those items weighing 2 carats and more, De Beers let clients sell 20% of goods back to De Beers, enabling them to keep the better-value rough and avoid taking on unwanted inventory, the sightholder reported. That allowance — known as buybacks — was down from the 30% it offered for the larger stones at the previous sight in September, the source explained.
Under the buyback policy, clients may sell back up to a fifth of the goods they purchase without it affecting their “demonstrated demand” — sightholders’ track record of rough-buying that De Beers uses to determine future allocations. The company previously allowed 10% buybacks, but increased that in the second half of this year to ease the pressure on the market.
De Beers has kept prices stable this year, instead responding to the slowdown by restricting supply by allowing clients to defer, reject or sell back more diamonds than usual. It slashed prices in November 2018 and June 2019, but those reductions were on lower-quality items. Sightholders continued to experience thin profit margins, with many dealers making a loss when reselling goods on the secondary market.
“Even if sales are good, the margins are difficult,” an India-based sightholder explained. “Something has to be done, otherwise things will just continue as they were. So this is good, as they had held on for a long time [without lowering prices].”
An oversupply in the midstream has negatively affected polished prices this year, with the RapNet Diamond Index (RAPI™) for 1-carat diamonds sliding 4.7% between January 1 and November 1. As a result, the market for smaller and larger, higher-quality rough is under pressure, miner Gem Diamonds said Tuesday while reporting a 55% drop in third-quarter sales to $36.3 million.
De Beers declined to comment on pricing. It is scheduled to release the sales total for the sight next week.
Image: Rough-diamond sorting at the offices of Debmarine Namibia, Namdeb and Namibia Diamond Trading Company in Windhoek, Namibia. (Ben Perry/Armoury Films/De Beers)