De Beers plans to abandon its practice of using sightholders’ purchase history as the main factor in determining how it allocates rough supply, sources have told Rapaport News.
The move, which would go into effect from 2021, would see the miner shift to more subjective criteria for deciding the value of goods each client receives.
The current system, known as “demonstrated demand,” requires sightholders to buy the rough that De Beers has allotted them or risk losing access to De Beers’ diamonds in future. The method has faced criticism for encouraging dealers and manufacturers to take on unprofitable inventory.
But with the current sightholder agreement expiring at the end of this year, De Beers has told clients demonstrated demand will not be the main driver of allocations in the new contract period, the sources said. Discussions about the matter continued at this week’s January sight in Botswana.
The proposals include studying data about clients’ business activities, as well as qualitative factors, to help determine whether companies should be on the client list, a sightholder explained on condition of anonymity. De Beers is also considering reducing the number of sightholders, according to a Bloomberg report last week that Rapaport News could not corroborate.
“We will be communicating directly with customers in the coming months about the new sightholder contract period, which will focus on maximizing the considerable opportunities ahead in the diamond sector,” a De Beers spokesperson said. The company would not elaborate on the details.
The midstream’s accumulation of excess inventory contributed to a severe slowdown in the diamond market in 2019, with De Beers’ full-year sales falling 25% to $4.04 billion. Last July, Dutch bank ABN Amro wrote to its clients urging them to buy rough only when it’s profitable, and attacked the practice of making purchases purely to maintain supply allocations.
Sightholders are expecting this week’s De Beers sale — the first of the year — to be relatively large as the trade replenishes its stocks following a solid holiday season. De Beers raised prices in certain categories, sources said.
De Beers has surprised analysts by selling more diamonds than expected at its latest sale.
The world’s largest diamond producer, which is owned by Anglo American, sold $390m of rough stone this month, compared with $297m at its previous sale in October and above market expectations of around $300m.
“The company has attributed this rebound in sales to signs of increasing polished price stability leading to improving sentiment from rough diamond buyers,” said analysts at Citi.
However, the latest “sight” marks the first time De Beers has sold less than $400m of diamonds in November since 2016, illustrating the tough conditions in the diamond industry.
Diamond buyers, who polish and cut gems for retailers, have been struggling to make money this year as the price of finished stones has slumped. That has forced De Beers to offer more flexible terms to buyers, something that continued in November.
At the same time, the industry is facing competition from lab-grown diamonds, which are chemically identical to traditional stones.
“Global consumer demand for diamond jewellery at the retail level continues to be broadly stable but with midstream trading conditions still in the process of rebalancing, we offered sightholders further flexibility during the sight to provide support,” said De Beers chief executive Bruce Cleaver in a statement
Citi expects rough diamond sales to fall 23 per cent to $4.3bn this year. De Beers is expected to generate around 10 per cent of Anglo’s earnings in 2019.
De Beers is taking more drastic steps to stem the crisis in the diamond industry by cutting prices across the board for the first time in years.
The company, the world’s biggest diamond producer, lowered prices by about 5% at its November sale, according to people familiar with the matter, who asked not to be identified as the information is private.
The move is aimed at helping improve profits for the middlemen of the diamond industry, a group of traders and polishers that buy rough gems from De Beers. Many of these customers, which includes family run traders in Belgium, Israel and India, as well as the subsidiaries of Tiffany & Co. and Graff Diamonds, are running on wafer-thin profit margins because of low prices and an oversupply of polished gems.
“De Beers is a price setter and has not made any price cuts thus far, despite the open market price for rough diamonds falling by about 9% year to date,” said Edward Sterck, an analyst at BMO Capital Markets. “The most important market participant finally taking action after holding out for so long feels like a fairly typical indication that things may be about to improve.”
The price cut is unlikely to trickle down to the retail market and consumers shouldn’t expect to see diamond prices getting cheaper anytime soon.
Part of the problem in the diamond industry is that prices have stagnated as other luxury offerings, like shoes, handbags and resort vacations, crowd the field. It’s also harder for diamond trading companies to find financing because banks are abandoning the sector after being hit by frauds and bad loans.
Still, De Beers has insisted that the current weakness doesn’t mean demand has softened. Last week, the company released data that showed demand for diamond jewelry rose 2.4% last year. In the U.S. market, where almost half of all diamonds are sold, the increase was 4.5%.
The Elite Club That Rules the Diamond World Is Showing Cracks
De Beers sells its gems through 10 sales each year in Botswana’s capital of Gaborone, and the buyers known as “sightholders” have to accept the price and the quantities they’re offered. It’s a system that originated in the 1890s and is designed to benefit both miner and customer, who receives the diamonds at a discounted rate. But the discount has been shrinking. Some sightholders now struggle to make money from a business that was once highly lucrative.
De Beers has offered its buyers more flexibility about their purchases, but it hasn’t been enough. The company made less than $300 million in each of the past three sales, which is the lowest in data going back to 2016.
The November sales data, due next week, could indicate whether the price cuts are helping drive demand.
Anglo American Plc, which owns De Beers, closed up 1.8% at 2,080 pence in London on Monday.
De Beers’ profit dropped in the first half of the year as weak demand at the trade and consumer levels impacted diamond prices, the company said Thursday.
The rough market was subdued due to high inventories in both the midstream and the retail sector, as well as a slowdown in growth of consumer demand, the miner explained. The US-China tariff dispute, protests in Hong Kong and the strong US dollar hit retail performances outside the US, especially in China and the Gulf region. In the US, retailers’ store closures and reduction of stocks weighed on polished demand, creating a further negative effect for the rough business, De Beers added.
Earnings before interest, taxes, depreciation and amortization (EBITDA) slumped 27% to $518 million as a result of the impact on margins, the miner reported. Total underlying earnings fell 7% to $187 million. Revenue slid 17% to $2.65 billion, with rough-diamond sales decreasing 21% to $2.3 billion. Other revenues came from businesses such as Element Six, its industrial-diamond unit, and De Beers Jewellers, its high-end retail chain.
“The lower rough-diamond sales reflected higher-than-expected polished stocks at retailers and the midstream at the beginning of 2019, with overall midstream inventory levels continuing to be high throughout the first half,” De Beers noted.
De Beers’ rough-price index, measuring prices on a like-for-like basis, fell 4% for the period versus a year earlier. The average selling price declined 7% to $151 per carat, influenced by a change in the sales mix caused by the weaker conditions.
The company expects those challenges to continue in the short term, but also foresees an improvement as the industry reduces its inventory and consumer demand rises.
“Underlying GDP [gross domestic product] growth remains supportive of consumer-demand growth, and is expected to bring midstream and retailer stocks back to more normalized levels as we move into 2020, subject to an improving macroeconomic environment,” De Beers said.
Last week, De Beers reduced its production outlook following low demand, forecasting output of 31 million carats this year, whereas it had previously expected to recover 31 million to 33 million carats. Production fell 11% to 15.6 million carats during the first half, as the company chose not to increase mining levels at other deposits to compensate for a lull at the Venetia mine. Output at the site in South Africa has fallen amid its transition from open-pit to underground operations.
De Beers trimmed its production plans for this year as the world’s biggest diamond producer responds to a brewing industry crisis that’s hitting demand for its stones.
The Anglo American Plc unit will now mine about 31 million carats in 2019, at the bottom end of a previous forecast range. The company, once the monopoly supplier of diamonds, has a longstanding strategy to match supply with demand.
The diamond industry’s engine room, dominated by family-run businesses that cut, polish and trade the stones, is struggling to make money amid a flood of polished diamonds and stagnant consumer purchasing. That’s led to a slump in demand for the rough stones that De Beers mines from Botswana to Canada.
De Beers Diamond Sales Keep Dropping as Weak Patch Drags on
The weakness is showing up in the company’s sales, which are down about $500 million so far this year compared with 2018. The company has already gone unusually far in offering flexibility for its customers — allowing them to defer agreed purchases and lower the number of diamonds they plan to buy this year.
De Beers had already planned to produce a lot less diamonds than last year, when it dug up more than 35 million carats, the most since the global financial crisis. First-half output of the stones was 15.6 million carats, 11% lower than in 2018. The average selling price also fell 7%.
“Demand for rough diamonds remains subdued as a result of challenges in the midstream, with higher polished inventories, and caution due to macro-economic uncertainty, including the U.S.- China trade tensions,” Anglo said Thursday.
Macquarie Group Ltd. said before today’s announcement that it expects De Beers to post first-half profit of $567 million. While that’s down on last year, it’s performing far better than its smaller rivals, many of whom have seen their market values plummet to multi-year lows.
More than 110,000 Western Australian couples have celebrated a special occasion featuring a piece of Rosendorff’s fine jewellery.
An announcement to the Australian Securities and Investments Commission (ASIC) said a meeting of creditors was set to get under way at 11am Thursday.
Richard Tucker of KordaMentha Restructuring, appointed receivers and managers of Rosendorff Diamond Jewellers, said the business was holding too much stock.
“We are running a short highly discounted sale through the store to materially reduce the current stock levels whilst a sale or recapitalisation of the business is pursued,” Mr Tucker said.
I have always loved the mystique of diamonds. I’m attracted to the joy and romance they bring to their beholders
Craig Rosendorff “It is a tremendous opportunity to acquire a very special jewellery item at very competitive prices and may also help save an iconic Perth jeweller.”
He said a secured creditor would support the receivers to ensure current special orders, repairs and lay-bys were completed in time for the special occasions they might be destined for.
“From proposals, to weddings and anniversaries, we understand the importance and significance these items have on people’s special memories,” Mr Tucker said.
Daniel Hillston Woodhouse of FTI Consulting has been appointed as administrator.
Rosendorff is an iconic West Australian luxury business specialising in diamonds and bespoke jewellery design headed by Craig Rosendorff.
In 1975 Mr Rosendorff renamed and launched what became one of the longest-standing diamond companies in Australia.
His rags to riches story has been dubbed The Diamond Dream.
“I have always loved the mystique of diamonds,” he says on the company’s website.
“I’m attracted to the joy and romance they bring to their beholders, the heritage and their connection to families across generations.”
The large, glamorous showroom in the centre of Perth on Hay Street has been the setting of many magnificent parties and events showcasing the designs of the Rosendorff team.
Mr Tucker said gift cards and store credits would be honoured while trade continues.
White knight rescues collapased Rosendorff Diamond Jewellers
The Rosendorff fine jewellery business will carry on but under new ownership following a deal struck by receivers appointed last month.
Insolvency firm KordaMentha confirmed today it had struck an agreement to sell the business set up by Craig Rosendorff in the 1980s to an unidentified WA buyer also involved in the jewellery trade.
The deal, expected to be finalised in two to three weeks, guarantees more than 20 jobs and covers the Rosendorff trading name, stock and intellectual property.
Receivers from KordaMentha were put into Rosendorff Diamond Jewellers at the end of April.
The business, which owes at least $4 million to creditors, has shrunk on falling sales in the past three years to just its flagship store in Hay Street Mall.
The deal covers the Rosendorff trading name, stock and intellectual property.
Today’s sale announcement coincided with news the receivers are stepping up a discount sale which has already brought in between $2 million and $3 million.
The West Australian revealed yesterday that administrators from FTI Consulting had identified “irregularities” in the company’s accounts while sheeting home blame for the collapse to the mining downturn.
They questioned a $1.8 million shortfall in stock and four transactions totalling $170,000 where jewellery “left the store without payment”.
FTI said “there were limited controls around the accounting and inventory functions, which have led to some anomalies in the financial accounts”.
However, it noted that such irregularities were not uncommon, and there is no suggestion of any wrongdoing by Mr Rosendorff.
The firm’s statutory report on Rosendorffs also noted that Mr Rosendorff, who has invested millions of dollars in the business over the past 30 years, had drawn increasing amounts out of the company as its financial situation deteriorated.
Between July 2017 and FTI’s appointment, those withdrawals totalled $1.8 million, including $582,000 in the past 10 months.
The administrators says Rosendorffs had been under financial pressure for two years, citing “cash leakage” and a steady decline in sales after 2011, triggered by the end of the mining boom.
Gordon Brothers is owed about $2.2 million, Rosendorffs’ staff $400,000 and trade creditors $270,000.
De Beers is allowing its diamond buyers to refuse some lower-quality stones at its sale this week, according to people familiar with the situation.
It’s a rare move by De Beers, which is famous for requiring buyers to take what’s offered, and highlights the weak state of the low-end diamond market. The diamond miner made a similar gesture in 2016, when India’s move to ban high-value currency notes depressed demand.
Prices for cheaper stones, which are often small and low quality, have fallen in recent years. The market has been hurt by too much supply, lower profit margins in major cutting centers such as Surat in India and the depreciation of the Indian rupee. There’s also new competition from man-made gems, such as De Beers’s Lightbox brand.
The buyers, known in the industry as sightholders, will still have to purchase their quota of gems before the end of the year, said the people, who asked to not be identified because the sales are private. By delaying their purchases, buyers are hoping that demand will pick up during the gift-giving festival of Diwali, a Hindu celebration in early November.
De Beers, which is 85 percent owned by Anglo American Plc, operates mines across southern African and Canada. It sells diamonds at 10 sales a year in Botswana to a select group of customers. The buyers are expected to specify the number and type of diamonds they want, and then carry out the purchases at a price set by De Beers. If they reject too many gems, they risk losing their place in the sales.
Dealers reported a difficult but stable rough market as De Beers’ November sight closed with a value of $455 million — 4% lower than the same period a year ago.
The rough market improved slightly from the October sight, which was the smallest sale of the year as Indian manufacturing slowed for Diwali. However, sightholders still noted weak profitability on De Beers goods during November, with premiums on the secondary market close to zero.
Most boxes of diamonds from last week’s sight commanded prices on the dealer market that did not cover the costs of doing deals, explained Dudu Harari of diamond broker Bluedax in a report on the sight.
Due to resources dwindling Beers’ joint ventures will close four diamond mines by 2022.
Namdeb is a DeBeers project with the government of Namibia, Will close the Elizabeth Bay mine at the end of 2018 followed by the Daberas deposit at the end of 2019 and Sendelingsdrif in 2020. The main asset Southern Coastal will close in 2022.
Production saw a shift to offshore assets this past year. For the first nine months of 2017, Debmarine’s production surged 22% to 1.1 million carats.
Subdued world economic growth will make the next few years challenging, mainly due to negative impacts forecast in exchange rates and other indices.
Sotheby’s Auctioneers announced the upcoming auction of the Raj Pink diamond.
Weighing 37.30 carats the Pink diamond is the largest Fancy Intense Pink Diamond, according to Sotheby’s.
The Pink Diamond will feature at the auction house’s Magnificent Jewels in Geneva next month, and is estimated to fetch $20 million to $30 million USD.
The Original Rough Diamond was studied for over a year before the master cutter finished the polished Raj Pink Modified Cushion Brilliant cut
