Author: Avi Krawitz
RAPAPORT… The De Beers April sight ended last week with an estimated value of $650 million after the company raised prices by an average 3 percent. Some boxes, including stones above 5 carats and 1 carat to 2 carat goods, increased by high single digit percentages. De Beers boxes continue to sell at an average premium of about 5 percent on the secondary market.
“There were some price adjustments but overall it was a positive sight and the changes were measured,” said Nigel Simson, head of beneficiation at De Beers. “The market has improved as the Christmas and Chinese New Year seasons provided a platform from which to build in 2013. We’ve seen some positive signs with polished inventories coming down.”
Sightholders expected a larger increase from De Beers and were therefore satisfied with the changes made. One Antwerp-based sightholder said he was concerned the company may opt to make consecutive increases by small increments rather than one larger change at once.
Simson declined to speculate on future price changes stressing that De Beers reviews prices before every sight after assessing various aspects of the market, including polished and rough trends, and market liquidity among other factors.
Initial reports from this week’s ALROSA sale indicate similar increases of an average 3 percent implemented by the company.
Sightholders noted that speculation in the rough market has calmed since the sight. “People expected De Beers to raise prices by more than it did, which is why there was speculation in the market in the last month,” one Mumbai-based sightholder said. “Now that they didn’t increase by so much and they supplied enough goods to the market, I don’t see why there should be speculation.”
He added that De Beers supply returned to normal levels after there were shortfalls in the first two sights of the year. Rapaport estimates that De Beers sight sales fell 8 percent year on year to $1.75 billion during the first three sights of 2013.
Still, sightholders who spoke with Rapaport News agreed that their biggest concern remains the low profit margins they can achieve from manufacturing. One sight participant reported that while healthy margins usually hold at 10 percent to 15 percent, diamond manufacturers are currently gaining about 5 percent on their polished. As a result, manufacturers are not increasing their output especially since the next two months are traditionally a quieter period in the polished market, he added.
As a result, there are lingering concerns about further price hikes. “There are some margins in the polished, though not enough,” said one sightholder. “They’re okay to sustain a business if you have a strong business model and a solid balance sheet but I think that any increase from now would be catastrophic.”
De Beers Chairman
Anglo American has not yet appointed a new De Beers chairman to replace Cynthia Carroll who has resigned as Anglo’s chief executive officer (CEO). Mark Cutifani, former CEO of Anglo Gold Ashanti, last week took over from Carroll as Anglo CEO with Carroll scheduled to leave the company at the end of April. Anglo owns 85 percent of De Beers with the Botswana government holding the remaining 15 percent.
* Picture: De Beers sorting facility in Botswana. (Courtesy De Beers).