Why De Beers’ Rough were Differed at Dec Sight?

Two major developments took place in the global diamond industry within a span of two days during the month of December 2014. Firstly, on 10th December, many of Be Beers’ sightholders (including Indian) rejected at least 25% of rough offered to them in Gaborone by the Company and secondly on the very next day i.e. on 11th December, 12 Indian diamond companies signed a contract worth USD 2.1 billion with the Russian mining giant Alrosa for direct rough supply for a period of 3 years beginning from 2015.

The contract was signed during the World Diamond Conference India (WDCI) organized by India’s Gem & Jewellery Export Promotion Council (GJEPC) and the World Diamond Mark (WDM) with the support of India’s Commerce Ministry in New Delhi from between 11th & 12th December, 2014.

Various reasons are being quoted for the above rough rejection by the industry leaders. Prime among them are sustained lack of profitability throughout the mid-stream, prolonged sluggish demand and dwindling polished prices and growing polished stocks supported by a crucial lack of liquidity in the industry that make it difficult for them to share the optimism.

Question is being asked whether these two incidents correlated with each other or not. Yes, some of the industry leaders feel that Russia, being on the brink of recession, would offer it’s rough at a price lower by 3 to 5% to support its economy and this might have prompted the sightholders at the De Beers December site to reject its goods. Leaders also feel that diamonds are virtually available below the list prices in the secondary market.

Diamond market in India has virtually slowed down due to liquidity crunch and other issues. The Prices of rough diamonds have gone very high while on the other hand there is no movement in the polished diamond prices. The polished diamond inventory levels with the diamond factories in Mumbai and Surat are very high. Anglo American has stated that overall rough prices have increased by 7% for the year to date.

Although, De Beers has temporarily relaxed sightholder rules at the December sight to allow diamond companies that operate under beneficiation agreements in Southern African nations to defer up to half the goods they had planned to buy in December to the first sight of 2014, the sight saw higher amount of rejected goods than in previous sights. But that was expected because of the challenging conditions the industry has been passing through the end of the year. But De Beers still expects strong consumer demand in the major markets, especially America.

The presence of Russian President Vladimir Putin and India’s Prime Minister Narendra Modi at inaugural session of the WDCI has added not only the much-required sparkle to Indo-Russian economic ties but has also helped to revive the drop in the diamond trade. The Conference has turned out to be historic in the sense that the enhanced cooperation between Russia’s Alrosa and Indian diamond traders could make India the world’s leading diamond trading hub.

Also, the Conference has galvanized not only India’s diamond business community in all but the global industry players who opine that if the Indian Government continues showing determination to revive the diamond industry, India would certainly become the first destination for global diamond trade in the next five decades.

Both these developments will bear long-lasting impact on the global, especially India’s diamond industry.

Posted by Suresh Chotai