De Beers Raises Prices 3% at $650M April Sight

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Source: RAPAPORT

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).

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