The Alrosa Sight marked the beginning of the new contract period and included several new Sightholders. The boxes were divided into smaller parcels than before. For example, in the previous Sight, a parcel that was 1600ct was divided into two parcels of 800ct. The goods below 3 gr were sold in different proportions to each Sightholder, making it difficult to compare the price of the boxes. This time, the boxes at the Alrosa Sight also came sealed with plastic, just like the DTC boxes.
According to some traders, the Alrosa assortments were marginally better, although many parcels were more expensive, especially in the better goods. However, the situation in the market is such that some buyers opted to reject goods and about 30 percent was left on the table. It’s hard to believe, however, that the new Sightholders turned any goods down.
At the DTC Botswana Sight, although the price of many types of goods declined, a number of buyers claim that there were weaker categories in many of the parcels and that the price of rough is still much too expensive when compared to the resultant polished. Many manufacturers are continuing to make large losses as the price of polished continues to decline, which it has done for several months now.
According to the market, about 20 percent of goods remained on the table.
Trading in the secondary market was sparse, with many goods offered for sale with no profit and – at least for the buyers – with very tempting credit terms.
There was practically no trade in the more expensive goods as a result of the sharp drop in the prices of polished and the continuing high price of the rough.
According to the Sightholders, the price of the goods is still too expensive and another price correction is needed to make the price of rough and polished more compatible in the “outside” market. Prices have declined by more than 10 percent since December, and this reflects the true price of the market because there is no mechanism for the regulation of prices and the market is conducted freely.
Why have polished prices declined?
– The restrictions on paying with Visa in China, the war on corruption and luxury products (limiting gifts that had been used as bribes), limiting cash payment methods and tightening up on money being used by many customers to reduce or stop the purchase of luxury goods, including jewelry and diamonds.
– Restrictions in the rest of the world on cash payments.
– Reduced credit from the banks, which is reducing the amount of money available to manufacturers. and stresses them to sell in order stand in their rough buying obligations.
– Falling oil prices are prompting many customers from purchasing diamonds, which are luxury items.
– The depreciation of the ruble is making the price of polished goods traded in dollars more expensive for Russian customers.
– The Indian market is slowing down. In addition, the rupee is very weak against the dollar.
– Consumers prefer to buy gadgets rather than diamonds.
Beside the decline of polished prices, the industry is facing few other problems:
– The beginning of January brought about changes in International Financial Reporting Standards (IFRS). The new standards require increased transparency and this is likely to be a problem for many businesses to adhere to the new standards.
– There is also the problem that if the sources of rough officially lower their prices, it will have the knock-on-effect of further decreasing the resultant polished, that has in any case already declined.
-Today due to the large number of labs that grade diamonds, there is no unified standard for evaluating goods. Customers who turn to the GIA discover in many cases that they paid too much for their goods, which causes them to question the validity of investing in diamonds. Currently, even with advances in the Internet, you have to be the cheapest in order to sell.
– Even though interest levels in general currently stand at zero, diamantaires are facing difficulties to get financed the inter-market rate is 1.5 percent per month (18% a year) and it’s scary to think what will happen when interest rates start to rise.
To sum up:
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The rough suppliers have to give their Sightholders more immunity to be able to withstand those problems. Increased margins are needed, which will make the industry stronger, attract new investment and reduce fraud levels.
Suppliers cannot compare all of their clients to the mega-jewelry companies and expect the regular manufactures to pay for the rough the same prices. After all, they don’t expect jewelers to cut and handle run of mine production and to stock polished diamond they don’t want or can’t sell in their shops.
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“The rough suppliers have to give their Sightholders more immunity to be able to withstand those problems.”
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Also note:
Mining companies have developed highly sophisticated methods of selling while their clients remain at a disadvantage. There is no real negotiation, even in times of crisis when traders do not need or want to make any purchases. The situation is such that sometimes diamantaires have to buy at a loss just to stay in the game.
Clearly the situation has to change.
By Bluedax
