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Sightholders Refuse 15% of $570M De Beers Sight

11 october 2013

De Beers sightholders expressed frustration following the October sight as there remains little profitability or liquidity on the rough market, Rapaport reports. The De Beers sight, which ended on October 4, had an estimated value of $570 million before refusals. An estimated 15 percent of goods, or $86 million worth, were left on the table.
“People are still frustrated,” an Antwerp-based sightholder told Rapaport News. “There’s no liquidity in the market and there’s no profit margin in dealing or manufacturing De Beers rough at the moment.”
De Beers decreased prices by mid- to high-single-digit percentages on the Indian rejection goods but changed the assortments in some of the boxes, which sightholders noted effectively increased their value. The company raised prices on some boxes, most notably in the 4 grainers to 8 grainers by low to mid-single-digit percentages, with some adjustments made to the assortments.
A Mumbai-based sightholder reported that assortments were weak across the board, particularly in the 4 grainers and larger goods, which effectively raised the price and value of the boxes. “It doesn’t make sense because we were hardly making money on last month’s goods,” he said.
“They reduced prices slightly in the smaller goods, but it was not enough, and we feel that [De Beers] has put us in a position where we don’t know what to do with the goods. To manufacture a sight now is basically a loss-making proposition.”
David Johnson, head of midstream communications for De Beers, noted that the company recognizes the challenges facing manufacturers, especially with regards to tight liquidity in India. However, he added that the mood was mixed with sightholders reflecting the different markets in which they’re active.
“It was always going to be difficult to find a scenario in which everyone was happy with every box,” Johnson said. “Those who are active in the U.S., where we see some stronger consumer demand, are quite happy with how things are going,” he explained. “But areas where we see some greater challenges in the polished, some of those sightholders are finding things a bit tougher.”
Johnson expects the market will stabilize in the coming months as the festive seasons get under way. He added that De Beers anticipates an improvement in demand, with Diwali, Christmas and the Chinese New Year coming up, and some liquidity returning to the cutting centers as a result.
Sightholders were less upbeat about the mood with one sight participant reporting that sentiment is “very bad” in the rough market as sightholders are tired of not making money. “The strategy of De Beers is to take the last dollar, and outside rough is much cheaper,” he said. “People don’t believe in the system anymore, and doubt whether they will make money in the future, so this is the reason there are a lot of rejections.”
Sightholders rejected about 20 percent of goods at the previous two De Beers sights with trading on the secondary market remaining quiet throughout the third quarter. Dealer demand in the week following the October sight has remained cautious.
Nurit Rothmann and David Harary, co-founders of Bluedax, an online rough broker, stressed that there is a lack of liquidity in the secondary market and that prices are volatile. They reported that goods are either selling for cash, at cost or below, or buyers want credit. A Mumbai-based sightholder agreed, adding that buyers are asking for long-term credit but suppliers already have large credit exposure to these customers. “So they don’t want to sell at a loss or take a risk on the profit they can get by giving credit,” he said.
As a result, Rothmann and Harary noted that prices are changing all the time, which they add is a sign of weakness in the market. “In a strong market, everyone is selling at the same consistent prices, but prices are volatile on the secondary market.” they explained.
The next sight will take place in Gaborone on November 11 to 14.