Rough Diamond Prices Continue to Rise
Rough Diamond Prices Continue to Rise
De Beers DTC November sight estimated at $325M
By Avi Krawitz
RAPAPORT… Diamond manufacturers reported higher prices during the November sight period leaving many concerned that the market is being driven by artificial forces. “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 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 No.9 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 their prices and assortments accordingly.
DTC spokesperson Louis Prior explained that the two final sights of 2009 would be smaller because De Beers still has goods that need to come through production after the mining company curbed output from late 2008 through second quarter 2009. It has since started to ramp up production again and is expected to finish the year with approximately half the total it had in 2008. 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 on cleaner goods rose by about 5 percent and on piquet goods by as much as 8 percent. He stressed that the price hike surprised him as he had understood from recent meetings with DTC management that they would keep prices stable until after the U.S. holiday season. Similar price increases were reported from the recent Rio Tinto sight and BHP Billiton tender. Despite the increases, there were willing buyers for the goods – leaving some perplexed by what exactly is driving market demand.
Demand Factors
One Rio Tinto customer stressed that he while there is limited supply of rough and some shortages in the market, he doesn’t see the demand from consumers to justify the price increases. Most 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 being closed 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,” he added. 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 push demand, as retailers have depleted the stock that they held for much of the year and are buying again.
Positive Mood
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.”
De Beers is expecting Christmas and fourth quarter sales to be at least in line with the 2008 season, but has been hesitant to make 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 shortages of supply. “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.
DTC Sight Results 2009
Month Date Sight Estimate
January 19-23 $129 MIL
February 23-27 $142 MIL
March 30-3 (April) $258 MIL
May 5-8 $323 MIL
June 8-12 $548 MIL
July 13-17 $350 MIL
August 24-28 $480 MIL
September 29-2 (Oct) $300 MIL
November 2-6 $325 MIL
December 7-11
DTC Sight Results 2008
Month Sight Estimate
January $628 MIL
February $639 MIL
March $585 MIL
April $703 MIL
June $745 MIL
July $774 MIL
August $780 MIL
September $645 MIL
November $323 MIL
December $108 MIL
Note: Rapaport has revised its estimates in the above table for 2008 and the first half of 2009 to reflect De Beers DTC reported sales for those periods.