Expect that De Beers price cuts will affect other suppliers

De Beers sightholders' reaction to price reductions during the recent site was mixed. The cost of the site was estimated at $ 250 million excluding the offer of additional goods. The company lowered prices for its rough diamonds by an average of 8-10%, which stimulated demand for additional supplies during the week. At the time of publication, sightholders were waiting for a response to their requests.

"People, having learned the prices, began to ask for additional supplies, and this gave De Beers the opportunity to sell raw materials that could bring it a few hundred million dollars more," said one of the Antwerp sightholders of the company. "I just do not know if De Beers wants this."

Another sightholder believes that De Beers made it clear that it intends to limit the supply of raw materials during the remainder of the year in order to maintain a new level of prices. Rapaport News agency talked about this with several sightholders.

Paul Rowley, head of De Beers Global Services to Sightholders, told Rapaport News that the company is pursuing a supply-constraining strategy, since there has been a surplus of stocks in the market since 2014. He declined to comment on the prices on the site, but noted that De Beers gradually reduced prices in 2015, and its price index in the first half of the year fell by 8%.

Not enough

In the meantime, sightholders noted that they do not expect the company to lower prices again this year - even though, in their senses, the current price cut was not enough.

"Sightholders were pleased to reduce prices, but in many categories of goods it was not enough," said one of the market observers. "The profits are not yet, so although they are glad that De Beers has finally begun to do something, in the short term it will not help them."

However, the idea expressed by the sightholders is that in the coming months De Beers will focus more on limiting supplies than on lowering prices.

Although the increase in profit ratios may have encouraged sightholders to buy more rough diamonds, one Surkhat sightholder noted that diamond processing companies are not yet ready to increase diamond output, which is currently estimated to be approximately 40-50% of the productivity of enterprises.

Some expressed fears that diamond processing companies would buy diamonds at new prices, even in the situation of insufficient demand for diamonds. "The price of some boxes fell by 10-20%, so people asked for more goods - although I do not see the benefits," said one of the sightholders. "We all know how inflated the price of these goods was from the very beginning, and so far we do not see a breakthrough with the diamond manufacturers."

Perhaps, the prices for diamonds will decrease even more after correction of prices for rough diamonds, which, in the final analysis, will reduce the effect of this correction. "We will call this an adjustment, not a decline," one of the sightholders asks. "We should not talk too much about it, because it will affect the prices of diamonds and the mood in the market."

Effect of diamonds

Another sightholder agrees, noting that, according to his clients, they read on the Bloomberg news that rough diamond prices fell by 9%, and now they are waiting for diamond prices to follow suit. "Of course, this does not work that way, because the market is inefficient," he explains. "But that does not help me when I sell my diamonds or when the retailer sells their jewelry."

And yet the mood on the site improved compared to the previous month, as sightholders saw in the price adjustment the opportunity to increase their margin in the production of new diamonds. They also expect that De Beers price cuts will affect other suppliers, in particular ALROSA, which retained its previous prices in August.

The Russian company limited the volume of its offer to the August sale, which took place a week before the De Beers website, allowing customers to abandon purchases in full. Clients of ALROSA Alliance told Rapaport News that the prices at the auctions were relatively stable, but now they expect a similar decline, as in De Beers, in September.

Resigned to low demand

Unlike De Beers, which has reduced its production plan for the year in accordance with its weak sales, ALROSA still retains production targets. Clients say that the company has the opportunity to sell surplus stones to Gokhran. Representatives of ALROSA did not answer Rapaport's question about whether the company is considering such an opportunity. Analysts of VTB Capital expect that due to weak sales in recent months, the Russian company will reduce the target sales volume for 2015 by approximately 2 million carats of diamonds. Publication of ALROSA results for the second quarter is scheduled for Friday.

For sightholders, a reduction in supply can mean a shift in attention from demand prices, as they also agree that rough diamond shipments will remain low throughout the rest of the year.

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