Diamond Trading Company (DTC) sightholders will soon be bidding for De Beers goods in the secondary market through Diamdel’s online auctions, DTC’s chief executive officer (CEO) Varda Shine told Rapaport News, according to Avi Krawitz. In addition, clients of Diamdel, the De Beers sales arm for non-sightholders, will be given the opportunity to become sightholders even after the next supplier of choice contract period begins.
“If you look at the market now, what has happened in the last two years, and ahead at the next diamond decade, we feel that the changes were necessary and that we have created a win-win situation for everyone,” Shine explained. “Sightholders get access to Diamdel auctions and Diamdel clients will be invited to apply for intentions to offer (ITO) allocations in the middle of a contract.”
“Ultimately it gives more of the industry access to more of our rough,” she added.
DTC on Monday informed its clients of the changes at the start of this week’s August sight in London.
As part of the pilot program, Diamdel online auctions will be open to sightholders from October 2010 and to further qualifying diamantaires from April 2011. Until now, the auctions were only open to Diamdel clients, which numbered 468 at the end of 2009.
Diamdel launched its online auction platform in 2008 and it will continue to transfer more of its allocation of rough diamonds to the auction format as it seeks to encourage wider participation. However, these will continue to represent a relatively small portion of the De Beers overall sales, Shine explained. Diamdel held 14 auctions in 2009 selling 695 lots spreading between 134 different successful companies.
Diamdel Opportunity
Those successful companies will be given the opportunity to elevate their status to fully fledged DTC sightholders during the next contract period. “Diamdel clients who demonstrate consistently strong demand for certain categories of rough at the Diamdel auctions will, subject to availability, have the opportunity to compete for an ITO for those goods during the course of the 2012 - 2015 contract period,” Shine said.
DTC will invite such companies to submit a mid-contract proposal questionnaire once a year, during the three-year period, she explained.
Earlier in the year, DTC extended its current supplier of choice contract period by one year until March 31, 2012, to allow the market more time to “focus on the recovery.” Prospective sightholders will start the application process to be included in the new list of De Beers clients next year. The next three-year contract period will begin on April 1, 2012.
Fewer Sightholders?
DTC has streamlined the supplier of choice application process for the next contract period so that one simplified contract proposal questionnaire will be required by each applicant to cover multiple categories of goods.
Despite the planned changes, Shine stressed that a majority of De Beers goods will remain with sightholders and that De Beers is committed to the ITO system.
Market observers expect that the number of sightholders in the next contract period may decline after De Beers cut its long-term production outlook during the downturn and therefore the level of goods available for distribution. Shine said that output is expected to reach about 31 million carats in 2010 and rise closer to 40 million carats in 2011. Production halved to 24.6 million carats in 2009.
“The number of sightholders will be dictated by availability and it is true we don’t expect to ramp up production to the pre-recession levels,” Shine said. DTC currently has 79 global sightholders receiving goods at its London and South Africa sights and at its joint venture sights in Botswana and Namibia.
Further changes are expected to be announced as De Beers said it would provide updates before the year end.
Botswana Auctions
Industry analysts expect that a portion of the company’s Botswana production may be set aside to be sold at auctions in Gaborone as the government there has expressed its intention to develop trading outside the DTC system.
De Beers marketing contract with the government for Debswana goods expires at the end of 2010 and the two partners are expected to start negotiations to renew it shortly.
Shine declined to comment on whether an auction option in Botswana would be considered by De Beers, noting that negotiations have not yet started.
“There is a great alignment between the government and De Beers,” Shine added. “Right now we are focused on moving our supplier of choice program forward.”
