AOJ E-NEWS: De Beers sold $530 million worth of rough diamonds in June as sight holders continued to complain of shrinking manufacturing margins and a mismatch between rough and polished prices.

The miner lifted prices by an estimated 2% to 3% in certain categories. Higher rough prices without a corresponding increase in polished demand could lead to diminished profits for the midstream, with some cutters already headed toward a loss on rough, traders warned.

The value of the June sight, De Beers’ fifth of the year, was 7% below the $564 million the miner had sold a year earlier. The company’s rough sales fell an estimated 4% year on year to $2.92 billion in the first half of 2017.

Traders attributed the decline to lower availability. As in the previous sight, De Beers did not offer any “ex-plan,” or extra goods, as the company has reduced the volume of rough it is making available this year.

Sight holders reasoned that De Beers was experiencing shortages in some categories of rough, while some suggested the miner was aligning rough supply with sluggish polished demand. De Beers has also noted it has increased supply to its Namibian government partners as per the recent agreement between the two parties.

“We’ve seen a very bullish rough market this year,” one rough broker said, adding that dealers were “banging on my door looking for rough.”

De Beers CEO Bruce Cleaver noted the strong demand in a statement on 20 June, saying it came off the back of “positive feedback from the Las Vegas trade show” and mirrored recent trends in the market.

The polished sector, however, “is only creeping up ever so slightly,” the anonymous broker said. “I’ve never seen this sort of imbalance before. I don’t believe this rough market can charge on like this forever.”

Other De Beers buyers were less pessimistic, but still noted that business was increasingly difficult for the midstream.

“Rough is quite expensive compared to polished, so the margins are low,” an India-based sight holder said. Even so, he added, “De Beers is not pricing at unsustainable levels such that sight holders are not making money.”

The rise in prices at the sight resulted in premiums on the secondary market declining to about 4% from an estimated 5% to 10% last month, according to sight holders. The gap between list prices — those De Beers charged at the sale — and the rates secondary buyers are willing to pay sight holders for diamonds has shrunk, they said. As a result, dealers have less space to turn a profit on the goods.

Courtesy - Rapaport