De Beers Lets Clients Delay Rough Purchases

RAPAPORT... De Beers loosened its purchasing requirements for roughbuyers at last week's sight in an effort to ease the oversupply affecting the diamond market.Sightholders have struggled to reduce their inventories due to an imbalance of stocks and weak polished demand. To tackle the problem, De Beers allowed its customers todefer purchases from the July sight to other sales later this year, aspokesperson confirmed Thursday. De Beers' long-term sales program compels customers to show certain levels of demand at sights, which take place 10 times a year in Botswana. They are free to push off buying onebox per "band" (selection of goods) per half year, but only from one sight tothe next. However, at last week's sale, sightholders were able to make an extradeferral, and could also delay to later in the year, not just by one sight.In addition, the company has brought forward sightholders'annual opportunity to reschedule their purchases, known as "re-phasing." Thisyear, that will occur after the July sight, the sixth of the year, whereas it'snormally scheduled for the eighth sight. De Beers' revenue and profit fell in the first half, as abuildup of excess polished goods in the midstream and retail sectors hit roughdemand, the company explained last week in its half-year earnings. A pricereduction at the June sight helped sightholders deal with the weakprofitability they are facing, De Beers chief financial officer Nimesh Pateltold Rapaport News Thursday. The miner also lowered its production forecast to 31 millioncarats for this year, compared with an earlier outlook of 31 million to 33million carats, Patel noted. Output in 2018 was 35.3 million carats. Holding back roughThe combination of lower production and prices, togetherwith increased purchasing flexibility, should tackle the "short-term" crisis,Patel predicted. The company also experienced a "meaningful increase" in itsown rough inventories during the first half because it held back rough, hesaid. "We've clearly reacted in terms of price, so we've injectedprofitability back into goods," the executive said. "Secondly, we've reacted interms of production.... Alongside that, we're working with our customers tooffer them more flexibility in the way they purchase, so [we've introduced] re-sequencingof the timing of their purchases of goods through the course of the year, whichis something that we've allowed [them] to do, and we've added to thatadditional referrals as well. All those things will see us through thisdifficult period." The problems come from within the diamond industry rather than from outside: Growth in global grossdomestic product supports consumer demand for diamond jewelry in the long term,Patel said. The US retail market is increasing, while sales in China and Indiaare also rising in local currencies, he observed. However, weak fourth-quarter holiday sales in 2018 and shakyconsumer demand in the first half has made it difficult for the industry tooffload polished stocks to retailers, Patel said. Consumers' shift away fromlower-end shopping malls has forced some companies to close stores andliquidate their goods, he added. Furthermore, retailers' increased reliance onconsignment has raised inventory risks for the midstream, as failure to make afinal sale often forces suppliers to resend jewelry items to a differentclient, or to dismantle and remanufacture the jewelry, he explained. "That doesn't help the midstream in terms of sell-through,"he noted. Yet the near future is positive because the issues are "specificto the balance of stocks in the midstream and the downstream," Patel argued. "It's a function of that excess polished asit sits today...just working its way through the system. As that happens, weshould see polished prices perform better [and] rough demand return." Main image: De Beers employee Kemmonye Bakupi sorting through rough diamonds at the company's Global Sightholder Sales operation in Botswana. (Ben Perry/Armoury Films/De Beers). Inset: Nimesh Patel. (De Beers)