DTC's Feb.sight estimated at $525M

| Monday March 1, 2010 00:00

While the De Beers marketing and sales unit announced a price increase in the high single digits prior to the sight, the company also changed its assortment of goods to allow sightholders to profit from their boxes. Sight participants noted higher increases in the cheaper Indian goods, as well.

'De Beers announced that they were increasing prices and sightholders assumed the worst, but when they saw the boxes, they recognized that there was value in the goods and that De Beers left room for sightholders to profit,' explained one industry professional.

As a result, DTC spokesperson Louis Prior reported that sightholders accepted the increases in a 'very matter-of-fact way' and that there were no refusals at the sight. Prior said that the sight was very busy and reflective of the current strong demand for rough in the market, which was about on par with the January sight.  One observer noted, however, that there was no pre-sight trading in February as in January and that premiums were a bit softer this month: 'There was a slight softening of rough demand this month, as people don't expect polished to rise too high.'

De Beers said it expects rough prices to remain stable in the near term, which one sightholder said would help raise polished prices. However, another market observer noted that if premiums continue to be inflated, De Beers may be forced to raise prices. 'So, the jury is still out on the stability that De Beers expects,' he said.

The softening of premiums in February constituted a welcome development for the market as 'premiums were absurd in January and people were paying because of the scarcities of rough,' said one India-based sightholder.

'There's a scarcity from a production point of view.'  An estimated $2.1 billion worth of goods came into the market from the larger mining companies - De Beers, ALROSA, Rio Tinto and BHP Billiton - in January and February, prompting a representative from another large Indian manufacturer to remark that 'I don't believe is enough to sustain the polished market at the moment.'

Others disagreed and noted that the large quantities coming to market at the moment were more a reflection of DTC's commitment to sightholder's intentions to offer (ITOs) than of strong demand or increased supply from De Beers.

'When sightholders submitted their ITOs in 2009, it was still the depths of the downturn, so they pushed off a large portion of their purchases to the later sights in the contract period,' said a market observer. 'So, De Beers had to hold back goods previously to make sure they could supply the diamonds now. The March sight will be the final sale of the current ITOs.'

A broker for small- to medium-sized Indian cutters agreed that the market for rough was still 'hot,' but expressed doubt regarding whether the market could sustain itself at current rough prices since polished is not gaining at the same rate.

'When polished increases 3 percent, rough goes up by 10 percent,' he said. 'So, people want to see stability across the board.' (Rapaport)