De Beers Ends Special Supply Measures

RAPAPORT... Rough-diamond buyers are anticipating an improvement insales at next week's De Beers sight, as the miner is withdrawing concessions that allowed clients to reject goods. De Beers will revert to its standard rules limiting sightholders' abilityto refuse or defer their supply allocations, sources in the rough market told Rapaport News.They will also only be able to sell 10% of their purchases back to De Beers,compared with larger amounts in recent months. "A lot of [sightholders] have tried to push back as muchas they could earlier in the year to December, so the December sight mightactually be slightly bigger than what people expect," a rough broker explained."[It's] back to the original measures, which are to offer people 10% buybackpossibility. There's no additional flexibility anymore." Starting in July, De Beers let sightholders hold off morepurchases than usual until later in the year to ease an oversupply of rough andpolished in the midstream. At some sights, it made the unprecedented move of allowing them to refuse 50% of individual diamond boxes. It also agreed to buy back up to 20% of the rough itsold, briefly raising that allowance in September to 30% for larger goods.In December, De Beers will not permit any deferrals, and will repurchase only one in 10 carats it sells,and none of its larger goods, in line with its default policy. The sale, running from Monday to Friday in Botswana,comes amid increased optimism in the diamond market ahead of the holidayseason. A three-week shutdown at Indian cutting factories during Diwali hascontributed to a drop in polished inventory, with some categories now in shortsupply. "[Manufacturers] have had some time off, and the markethas slightly improved," an India-based sightholder observed. "They'll be tryingto start up their manufacturing [again]." The upcoming sale is also buyers' final opportunity toprove demand ahead of De Beers' decision on the supply each customer willreceive in 2020. De Beers is in the process of finalizing allocations for thenew intention-to-offer period, or ITO, which it bases on past purchasingrecords. For that reason, clients are unlikely to reject more goods thannecessary, another sightholder explained. "It feels likewhatever is going to be on the table will be sold," he said. "Anything you'regoing to give back now, you have the threat of your ITO being recalculated.They also reduced prices last time, so I don't see people refusing goods thathave been reduced in price at the last sight." Sightholders are already expecting the value of their2020 allocations to be smaller than this year due to a drop in De Beers'production and the price decline of roughly 5% at the November sight. The mineris predicting output of around 31 million carats for 2019, translating to a 12%decline versus last year, and will release its 2020 forecast on January 23. De Beers informed sightholders this week of theirprovisional supply for the new ITO, which will follow a calendar-year cycle forthe first time.Next week's sight is the 10th and last of the year. Salesfell 26% to $3.6 billion for the first nine cycles, with November seeing agentler year-on-year decline of 12% as demand began to stabilize.Image: A De Beers sightholder examining a rough diamond. (De Beers)