De Beers increased prices of goods above 2 carats at this week’s sight as shortages of rough coincided with strong polished demand.
Prices rose around 5%, and more in some categories, market insiders told Rapaport News on Monday. Near-gem items also saw significant increases, while prices for other stones under 2 carats were either stable or slightly up.
“They seem to have picked areas where they’ve seen room [for price growth], and they’ve just hiked the prices up,” a source in the rough sector said on condition of anonymity. “For the time being, the market is absorbing it.”
Rough trading has been strong in recent weeks because of reduced supply from the large miners and solid polished sales. The RapNet Diamond Index (RAPI™) for 1-carat diamonds has risen 2.5% since May 1.
Rough above 1 carat has been especially sought-after, with premiums on the secondary market rising while manufacturers look to fill inventory gaps. A backlog of grading submissions at the Gemological Institute of America (GIA) has exacerbated the situation.
The June sight value will be similar to last month’s $380 million as customers snap up the limited goods available at the sale, sources said. Proceeds were higher earlier in the year — peaking at $663 million in January — when manufacturers restocked after the holidays and De Beers had larger volumes available to sell.
“There’s a shortfall in goods,” an executive at an Indian sightholder said Monday. “They’re not able to serve everyone what they’re entitled to.”
Rough demand slumped during the 2020 coronavirus crisis as the global supply chain froze. De Beers chose to maintain prices until August, when it offered deep discounts to encourage sightholders to resume buying. It has since reversed those cuts, gradually bringing prices to above pre-pandemic levels in many categories.
The sight began on Monday and runs until Friday. De Beers was not available for comment at press time.
Rough-diamond demand was robust at this week’s De Beers sight despite the ongoing Covid-19 crisis in India, customers reported.
Manufacturers snapped up the limited supply in anticipation of rough shortages, sources told Rapaport News. Sales will still be 10% to 25% lower than the previous cycle in March because of reduced availability, they estimated. That translates to a sight value of $330 million to $400 million.
“People are buying from the miners and the big sources, thinking that there will probably be tenders that will be canceled,” a sightholder said. “There is the perceived idea that there’s going to be a shortage in certain goods. People are as eager to buy rough as they were four weeks ago.”
De Beers is not offering any ex-plan goods — those over and above customers’ prearranged allocations — the sources added. The miner has fewer diamonds available for clients after reducing its inventories during a strong first quarter for the rough trade, when it sold 13.5 million carats against production of 7.2 million carats. It has suffered operational difficulties at some of its Botswana deposits, exacerbated by a temporary shutdown at its Gahcho Kué mine in Canada.
“If De Beers offered 20% more [goods at the sight], I think the market would eat it up,” a rough-sector insider commented.
Less manufacturing
While India’s diamond and jewelry sector has received permission to operate during the country’s several coronavirus wave, manufacturing levels have slumped by between 10% and 50% in the past month. This has resulted from capacity restrictions and absenteeism, with smaller sizes seeing a sharper downturn.
Companies that manufacture larger goods operate in factories with more space for social distancing and are able to retain workers by offering higher pay, a sightholder explained. Many employees who produce smaller stones have left Surat and returned to their hometowns for health reasons.
“My production is down by a little less than 10%, but for people who are in smalls, their production has been severely hit, and is probably down by more than 30%,” said an executive at a large-stone manufacturer.
In line with this, the market for large rough has survived better than the small-stone segment, sources explained.
“Anything in [0.75 carats] or up, it’s in big demand,” a customer noted. “You can sell whatever you want.”
Meanwhile, polished demand has strengthened as companies anticipate lower availability alongside steady retail sales. A backlog at the Gemological Institute of America (GIA) has also affected the supply situation, with the turnaround time standing at around a month for the Mumbai laboratory and a little more in Surat.
“Due to the supply scarcity, people are stocking [up on] some of the goods, so demand is high, and will remain strong for a month or so,” another manufacturer said.
India’s virus outbreak has seen activity shift to other global centers. Many large manufacturers relocated their buying teams to Dubai before travel restrictions went into effect, enabling them to continue obtaining rough for their factories, reported Trans Atlantic Gem Sales (TAGS), a tender house located in the emirate.
New contract
De Beers’ weeklong May sight, its fourth of the year, began on Monday, featuring viewings in Dubai, Antwerp and Tel Aviv. The session is also the first under a new supply contract that came into effect on April 1.
The agreement sees the miner offer proportionately more goods to manufacturers rather than dealers in an effort to limit the reselling of boxes. Sightholders expected sluggish rough trading on the secondary market this month as a result.
Certain assortments have also changed, with 8-grainer (2-carat) rough now forming part of a category of larger stones ranging from 2 carats upward, sightholders noted. The size was previously in a 4- to 8-grainer (1- to 2-carat) box, which will now become 4- to 6-grainers (1 to 1.50 carats).
“This was focused both on responding to sightholders’ commercial needs and ensuring we have the most coherent offering for beneficiation customers,” a De Beers spokesperson said.
Customers forecast stable pricing at the sight following successive increases from December to February.
In celebration of the natural beauty of the countries from which its diamonds are produced, De Beers Jewellers has introduced Reflections of Nature, the venerable house’s latest collection in the stratospheric world of high jewelry.
The dazzling collection features five sets Okavango Grace, Motlatse Marvel, Namib Wonder, Landers Radiance and Ellesmere Treasure with a total of 39 exclusive pieces.
The latter is probably the most unexpected as few laymen would recognize Canada as a source for diamonds. Yet, Ellesmere Island in the Canadian Arctic is the third largest producer of diamonds in the world.
The pieces in this DeBeers set were designed to reflect the island’s glacial beauty and are evocative of the ice and frosted flora of Ellesmere Island, where diamonds were first discovered in 1991. While colored stones are employed throughout the other Reflections of Nature sets, the Ellesmere Treasures are indeed treasures with their all white diamonds.
A UNESCO World Heritage Site, the Okavango Delta in Botswana is inspiration for De Beers’ Okavango Grace set. Recalling the lush wetlands and the fluidity of the delta’s reeds, the set features a color scheme of rough pink, green, brownish pink, purple and grey diamonds suspended in organic strands that move freely with the wearer.
Design of the Namib Wonder set is based on the beauty of the world’s oldest and largest sand dunes found in Namibia’s Namib Desert. Brilliant white and yellow diamonds set the stage for white rough diamonds, which are cap-set allowing them to move more freely and catch the light from every angle.
The sunburst motif of the Motlatse Marvel earrings is inspired by the brilliant sunrises and sunsets over South Africa’s Motlatse Canyon. (Photo courtesy of De Beers Jewellers)
The spectacular sunrises and sunsets over the peaks and caverns of Motlatse Canyon in South Africa provide the creative cue for the colorful Motlatse Marvel set. Pink, yellow and white diamonds conjure bejeweled sunbursts.
The teaming underwater universe of South Africa’s Landers Reef is suggested in the Landers Radiance multi-colored, multi-cut theme. “A rainbow of white and fancy color diamonds evokes the vibrant colors of corals and fish, shimmering in sunlit waters” is how De Beers’ promotional materials describe this set.
With introduction of the collection, De Beers Jewellers is reaffirming its commitment to environmental conservation through its widespread Building Forever sustainability initiative and the houses’s commitment to its code of best practices principles. That includes conservation of “The Diamond Route,” some 50,000 acres throughout Southern Africa.
The two largest diamond miners increased prices at this week’s rough sales as demand improved due to post-holiday restocking and strong trading ahead of the Chinese New Year.
De Beers raised prices by an average of 4% to 5% at its first sight of 2021, while Alrosa’s increases were around 6% to 7%, industry insiders told Rapaport News Monday. Both companies implemented steeper hikes in larger categories than for smaller goods, sources said.
“Alrosa makes sure that prices reflect the actual market trends and a confirmed real demand,” a spokesperson for the Russian miner said. De Beers declined to comment.
The miners have steadily been reversing the prices cuts they made in the second half of last year. De Beers’ price rise was its second in a row, with January prices almost back to pre-pandemic levels, sightholders noted.
The rough market showed momentum in January following a better 2020 holiday season than many had feared earlier in the year. Cutting factories in India raised polished production to full capacity as shortages emerged and retailers restocked, prompting manufacturers to buy rough in large quantities.
Demand rose on the secondary market, with De Beers clients able to make profits of 5% to 7% by reselling goods ahead of the sight. Those premiums declined slightly following the price increase.
“[Polished] inventory levels are the lowest for at least the past seven or eight years,” an executive at a sightholder said. “That’s the reason people are going to be more aggressive in their purchasing,” he continued, adding that some traders foresaw a spike in consumer demand due to government stimulus packages.
Prices at smaller miners’ tenders were higher still — in contrast to mid-2020, when manufacturers could get goods up to 25% cheaper on the open market compared with De Beers and Alrosa boxes. Tender prices fluctuate with the market conditions more than contract-sale prices do, as the smaller rough producers have greater liquidity needs.
Some traders expressed concern that the surge in rough purchases could lead to an oversupply, as Chinese retailers have almost finished preparing their inventories for the upcoming lunar festival on February 12.
“It’s time to go back to business, but it’s no time to push your production to the max and buy rough at any price with the excuse that your factory needs it,” another sightholder argued. “The end of year has been OK, including in the States. There are great expectations for a fantastic Chinese New Year, but the reality is that any Chinese retailer has stopped buying as from this week.”
Amid the uncertainty, Alrosa kept its policy of allowing customers to defer 100% of their allocations in January, noting that it wished to uphold the balance between supply and demand.
De Beers also allowed sightholders to refuse a proportion of their allocations for goods up to around 0.75 carats, while maintaining its standard flexibility — including 10% buybacks — in larger categories.
De Beers’ sight began on Monday in Botswana and runs until Friday, with viewings also taking place in Antwerp and Dubai. Alrosa’s sale started last Friday and continues for a week.
The diamond sector’s rebound from the Covid-19 crisis will feature ups and downs that will continue into next year at least, De Beers predicted.
“The demand recovery is not expected to be linear, particularly as localized lockdowns take place,” De Beers explained Monday in its annual Diamond Insight Report. “Retailer expectations for the second half of the year are mixed, with more optimism in the US but muted sentiments in India and the Far East.”
The pandemic severely hit Chinese demand in the first quarter of this year and US sales in the second quarter, with the recovery likely to “extend well beyond 2020,” the company noted. The impact of Covid-19 on the global economy and the second wave of lockdowns in the fourth quarter have further harmed consumer spending, it added.
“The consequences of these events will determine the short to medium-term outlook,” De Beers added. “However, a weakening US dollar could offset some of the softness in demand in local currencies.”
The pandemic dented the positive trends that were visible at the end of 2019, De Beers said. Diamond-jewelry sales to Chinese consumers slid 45% year on year in the first quarter of 2020, and by around a third for the entire first half, the company estimated. The second-quarter recovery was “tentative,” mainly benefiting established brands and online sales, it added.
In the US, sales dropped about 40% in the second quarter of 2020, and by just under 20% for the first half. There was “evidence of rising sales” among independent jewelers and chains, as well as online, in June and the third quarter, the company continued. Demand in India dropped by more than 30% in the first half, reflecting a slump of nearly 50% during the April-May lockdown.
In 2019, global diamond-jewelry demand increased 0.5% to $79 billion — a weaker growth figure than in previous years as the strong dollar dented sales in China. Demand rose 4% in the US and 3% in Japan, offsetting weaker figures in other markets. The US expanded its share of the polished-diamond market to 48%, from 46% in 2018, while China slipped to 15% from 16%.
The Chinese yuan depreciated against the dollar in 2019 amid a trade war between Beijing and Washington, DC. In local-currency terms, demand from Chinese consumers climbed 1%.
De Beers CEO Bruce Cleaver has called on the trade to allow rough purchases, assuring manufacturers the company won’t require them to buy in the weak market.
“We will only sell [rough] when the demand is such that it can create sustainable value for all of us,” the executive wrote in a blog post Friday. “However, just as we are not compelling our clients to purchase, we strongly believe it is counterproductive for any part of the industry to compel them not to purchase.”
Cleaver’s plea comes after the Gem & Jewellery Export Promotion Council (GJEPC) and other Indian trade organizations called on the nation’s diamond sector to pause rough-diamond imports for 30 days, beginning on May 15. The move would improve the Indian industry’s liquidity situation and deplete inflated polished inventories, the trade bodies explained.
Without explicitly referencing the Indian trade groups’ appeal to their members, Cleaver argued that supply had already been significantly reduced after De Beers suspended production at most of its mines. “Almost all other diamond producers have halted or significantly reduced supply, with some mines unlikely to return to production,” he added. De Beers cut its production guidance for 2020 to 25 million to 27 million carats, more than 20% below its initial projection, Cleaver noted.
The company also canceled its March sight and is offering 100% deferrals at sight 4, which begins Monday. Sightholders are likely to defer the vast majority of purchases to later in the year, as weak consumer demand and the shutdown of India’s cutting industry have diminished appetite for rough.
On Friday, India extended its nationwide lockdown by two weeks, raising the question of when diamond manufacturing would revert to normal, especially in the city of Surat, which produces more than 90% of the world’s polished goods.
Marketing message
Meanwhile, Cleaver urged the industry to capitalize on the diamond’s symbolism, as consumers will seek to purchase “fewer, but more meaningful things” as they move out of lockdown. Signs of pent-up demand from delayed weddings, and self-purchases to reward hardships that have been overcome, are starting to show in China as the lockdown there has eased, the CEO commented. People are visiting stores and shopping malls again, he said.
In its communication with consumers over the coming months, De Beers will emphasize the role diamonds play in shaping a better world and in forging meaningful connections, he stressed.
“Just as they have had to find innovative ways to stay connected with loved ones, we will find new ways to connect with them,” he said.
“Throughout time, the diamond has served as a powerful symbol of connection and meaning,” he wrote. “It has always been attached to life’s most precious moments and relationships and represented a store of value, but increasingly we believe a diamond is becoming a store of values.”
De Beers has reduced its full-year production guidance by 7 million carats, putting the miner on course for its lowest output since 2009.
The miner expects to produce between 25 million and 27 million carats in 2020, compared to the 32 million to 34 million in its original projection, it said Thursday. The revised forecast for 2020 was due to the impact of the COVID-19 pandemic on mining activity and consumer traffic in key markets, the miner noted.
Rough-diamond production for the first quarter of 2020 slipped 1% to 7.8 million carats, roughly in line with the previous year. However, the coronavirus shutdown measures were not implemented at the miner’s sites until the end of the period, and had a limited impact on output, De Beers said.
Sales volume rose 19% to 8.9 million carats for the three months ending March 31. The increase was due to a favorable comparison with the same period the previous year, when demand was weak due to an oversupply of polished stones in the manufacturing sector. Additionally, the decline in demand caused by the pandemic — during which De Beers allowed customers to defer some of their allocations to the second quarter — was offset by higher appetite for lower-value goods, the company noted.
Production in Botswana declined 5% to 5.6 million carats, with diamond recovery at De Beers’ Orapa mine falling 7% as result of challenges in commissioning new plant infrastructure. Output at Jwaneng slipped 4% due to a planned shift to lower-grade ore.
Production in Namibia grew 6% to 511,000 carats, and in South Africa jumped 97% to 751,000 carats, as the final ore from the company’s open-pit operations at Venetia was mined prior to the transition to underground.
Output in Canada slid 19% to 844,000 carats, primarily due to the closure of the Victor mine, which reached its end of life in the second quarter of 2019. Output from Gahcho Kué, which the company owns in partnership with Mountain Province, rose 4% to 844,000 carats.
The first quarter featured two sales cycles, with proceeds falling 9% to $906 million. Demand reached a near-yearlong high in January, but fell again in February as the coronavirus began to spread. The company was forced to cancel its third site, which was due to begin at the end of March.
In 2009, the company slashed production by 49% to 24.6 million carats for the year when the global economic slowdown hit diamond demand.
De Beers plans to split sightholders into three categories and offer each group a more bespoke selection of rough diamonds as part of changes to its sales system.
Manufacturers, dealers and retailers will sign specific supply contracts designed for the “broad needs” of each business model, a De Beers spokesperson told Rapaport News Thursday.
The arrangement will take effect in January 2021, following the end of the current sightholder contract, which runs until December 2020. Applications start this week, giving companies four weeks to complete the process, a source in the rough market said on condition of anonymity.
The manufacturer contract will “support the core strengths” of each cutting firm, De Beers explained. Dealers — those that buy rough for resale — will receive a “regular and consistent range of goods,” especially in higher-volume areas. The retailer contract is tailored for companies that sell jewelry to consumers and also have polishing operations. Beneficiation contracts — for sightholders that commit to polishing certain goods in the country where they were mined — will remain as modified versions of the manufacturing contract.
“It is our ambition to offer supplies and services that can help to better support the unique strengths of the great businesses of the diamond midstream, and we feel this approach is the optimal way of achieving this,” the spokesperson said.
The company has long been contemplating changes to its sightholder system amid difficult conditions in the manufacturing and trading sectors, such as tight liquidity and an inventory imbalance. Its supply rules — based on a method known as “demonstrated demand” — have also faced criticism.
Under that system, De Beers mainly determines clients’ rough supply using their purchasing record — a controversial policy because it can encourage sightholders to take on unprofitable inventory to secure future access to its goods. It offers the diamonds in prearranged boxes that customers either take or leave, with only limited flexibility to adjust the contents. That sometimes forces sightholders to buy items they don’t want just so they can get the stones they need.
The current method has come under particular scrutiny given the excess polished in the market last year, which contributed to a slump in rough demand. Last July, Dutch bank ABN Amro urged its clients to stop buying unprofitable rough, and attacked the practice of making purchases purely to maintain supply allocations.
De Beers’ revenue fell 24% to $4.61 billion in 2019, while underlying earnings slid 87% to $45 million, as the supply glut left sightholders unwilling to buy more rough. The situation forced the miner to allow unprecedented refusals and other concessions to avoid flooding the market with goods.
The “need for us to adapt to the changing world” has been the subject of talks between De Beers and sightholders for a while, the company spokesperson added.
“This new approach to sightholder contracts is one way we are going about this,” he noted.
De Beers has allowed clients to forgo buying certain rough diamonds at this week’s sight, as the coronavirus outbreak has raised concerns about a polished glut.
The miner has let sightholders defer purchases of goods that produce the types of polished popular in the Chinese retail market, a source at the sight told Rapaport News Wednesday. The concessions apply to 1- to 2-carat rough diamonds that can make polished under a carat, as Chinese demand is highly focused on that size category, especially the 0.30- to 0.50-carat range.
Instead of taking up those allocations at this sale, the second of the year, customers will be able push them back to sights 3, 4 and 5. Those who already deferred their supply from the last two sales of 2019 will only be able to delay their purchases to sight 3, which begins March 30.
“People are very afraid of the market, and stocks are building because there are no sales to the Far East,” the source said on condition of anonymity. De Beers declined to comment on the move.
De Beers apportions rough supply to sightholders based mainly on their purchase history, and divides those allocations across the 10 sights that take place during the year. Clients can usually defer only a limited proportion of the goods earmarked from them, but the miner has provided more flexibility of late because of the weak market.
In the second half of last year, De Beers offered unprecedented measures, such as letting customers refuse half of the goods in a box or sell up to 30% of their rough purchases back to the miner.
It ended the special rules at the December sight, as an oversupply of polished in the midstream started to ease. However, the coronavirus epidemic has lowered jewelry demand in China, where the outbreak started, creating uncertainty about manufacturers’ ability to sell their polished. Concerns escalated this week when it emerged the disease had spread beyond the Far East to Europe and Iran.
“The virus has the potential to badly damage the market for the next few months, but we don’t know [the extent of the impact],” an executive at a Mumbai-based sightholder commented. “If it goes on for a long time, it will be a problem not only for De Beers, but for many, many companies in India.”
De Beers gave a positive outlook for 2020 due to an improvement in the industry’s inventory situation, despite growing concerns about Chinese demand.
Early data from the holiday season indicate midstream stock levels are more balanced than they were, the company reported Thursday in parent company Anglo American’s annual financial results.
The miner maintained its production forecast of 32 million to 34 million carats for the year, citing a “currently anticipated improvement in trading conditions compared with 2019.”
Last year was the worst for De Beers in the past decade, as rough demand plummeted amid an oversupply of polished in the manufacturing and trading sector.
The miner reported that underlying earnings slid 87% to $45 million, while revenue fell 24% to $4.61 billion, its lowest level since the financial crisis.
Rough sales declined 26% to $4 billion, with volume down 8% to 30.9 million carats. De Beers’ average selling price slumped 20% to $137 per carat, reflecting a 6% decline in like-for-like rough prices, as well as weak demand for higher-value diamonds.
Sales from other divisions, which include the Element Six industrial-diamond unit and Lightbox, its lab-grown brand, fell 17% to approximately $570 million, according to Rapaport calculations.
Last year started on a weak note, as stock-market volatility and the US-China trade war led to sluggish 2018 holiday sales, leaving the trade with higher stock levels than it had expected, the company explained.
The situation worsened as US retailers took more goods on memo and pruned their physical-store networks, while consumers shifted further to online buying, reducing the need for inventory.
The midstream also suffered from tight bank financing, dampening demand for more rough, De Beers noted.
De Beers observed “stable” consumer demand so far in 2020, especially in the US, but cautioned that several uncertainties — including the coronavirus outbreak — could pose a threat.
An increase in online purchasing has caused retailers to destock, while US-China trade tensions and geopolitical escalations in the Middle East could also affect economic growth and consumer sentiment, the company added.
