De Beers Raises Prices at $520M Sale

RAPAPORT... De Beers' April sight closed with a value of $520 millionamid concerns among manufacturers that higher rough prices could affect profitmargins.De Beers raised prices by 1% to 2% from the previous salefor larger size categories, sightholders told Rapaport News this week. Inaddition, De Beers adjusted the way it arranged stones into assortments that itsells, resulting in most of the boxes of goods increasing in price, clientsexplained. "It's very difficult to see profit on theboxes when you manufacture the goods," a sightholder stated.  Cutters have little choice but to accept the high prices, asthe alternative is to jeopardize their sightholder status, rough broker DuduHarari said in a report on the sight. "Since they stand to lose money manufacturing, manysightholders prefer to trade their rough rather than dealing with [the] longand expensive manufacturing and polishing sales process," Harari noted. Even so, dealers' premiums - the margins they can make whenthey trade rough on the secondary market - are also thin, making it hard for firms to make a profit, sources explained. High polished inventory levels and low manufacturing marginscould push prices down, Harari predicted. Increased financial restrictionsfollowing fraud allegations against Indian jewelers Nirav Modi and Mehul Choksicould also result in a slowdown of the market, potentially forcing miners tomake their goods less expensive, he added. In addition, rough prices often drop in May and June asIndian cutting factories work at lower capacity during the summer vacation,restricting demand, an anonymous sightholder explained."While the second quarter of the year is traditionally a seasonally slower period, we continued to see good rough-diamond demand in the third sales cycle of 2018, as diamond businesses have focused on restocking following healthy consumer demand for diamond jewelry in the US and China," said De Beers CEO Bruce Cleaver.Rough-diamond proceeds during the third sales cycle of the year were 8% lower than the previous cycle, and 11% lower than the equivalent period last year, De Beers said Tuesday. The figures included last week's sight and other sales, such as auctions. The sight was the first of the new intention-to-offer (ITO)period, which began on March 31 and lasts for a year. Under the revised ITO arrangement, De Beers will supply asignificantly larger proportion of goods to its sightholders in Botswana as itfulfils its contractual obligations to the country's government, with which itoperates a program to support local manufacturing, sources told RapaportNews. The miner will also make slightly more goods available to clients inSouth Africa and Namibia under similar arrangements, known as beneficiation programs. Total supply to companies in all three countries, as well asto the international sightholders who make up the bulk of De Beers' clientbase, will increase overall in dollar terms, the sources explained. De Beers sells about 90% of its rough diamonds across 10contract sales per year, known as sights, in Gaborone, Botswana. At the startof the ITO, De Beers provides each sightholder with a plan outlining the supplyof rough diamonds it intends to offer the client. In other changes, De Beers will no longer take into accountclients' auction purchases when determining how much supply to allocatesightholders, a spokesperson for the miner said. Until now, companies that boughtdiamonds at De Beers auctions could use such activity to demonstrate theirdemand for goods, thereby increasing their chances of getting a higherallocation at sights.