Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,049.6077.8
Stock Analysis, IPO, Mutual Funds, Bonds & More

How a tough Indian market is making De Beers change its policy

De Beers, once-inflexible diamond company, allows traders to return rough stones, cuts prices.

, ET Bureau|
Updated: Nov 11, 2019, 04.59 PM IST
0Comments
Agencies
9
Once-inflexible diamond co allows traders to return rough stones, cuts prices
MUMBAI: For the first time, De Beers — once known for its formidable clout — is changing a quaint practice that marked the secretive world of diamonds. In a major shift, the 131-year-old De Beers is letting diamond houses return some of the rough stones sold by the group. It’s a sign, traders say, of a slow market and a probable decline in De Beers’ control over the supply of roughs.

For decades, representatives of chosen diamond houses assembled in a room, and each was given a box of diamonds — a mix of good and lesser quality rough stones. The buyers, called ‘sightholders’, took the box without a word — accepting whatever stones De Beers offered. The ritual, which took place in London, later moved to Botswana after the family that controlled the group sold a chunk of its stake.

According to industry circles, De Beers has recently allowed sightholders to return around a fifth or more of what they purchased across certain categories at its ‘sight’ (as the ritual is called), besides cutting prices of the roughs by 5% on average, to support them amid a crisis in India’s midstream, or diamond polishing, industry.

India is the global hub for cutting and polishing roughs, with an estimated 9 out of 10 diamonds processed by the country being polished in Surat, and to a much lesser extent in Mumbai.

8

Buyers allowed to return up to 20% of stones
Thanks to this over concentration, the industry has been grappling with an oversupply of polished inventory and tight liquidity conditions that have plagued other sectors as well, including auto and realty.

“Traditionally, the rejection rate has been 10% and that too in very select category of roughs. This month, sightholders had the flexibility to return around 20% of the stones across more categories,” said Anoop Mehta, director of Mohit Diamonds, one of over 30 Indian sightholders.

Another sightholder said rough prices this month were reduced on average by 5%, in addition to the higher rejection rate permitted. In the October cycle, the rejection rate was 30%, he said.

Sightholders cannot reject the entire box. However, they were given the flexibility to defer the purchase of the full box by a few months.

De Beers sells rough diamonds through 10 events (‘sights’) annually in Botswana where its 80-odd sightholders are given a box containing diamonds filled in plastic bags. In each of the past three sales cycles, culminating in the one on October 2, De Beers made less than $300 million — which Bloomberg termed as being unprecedented citing data going back to 2016. This is being attributed to the financial stress and oversupply in India’s midstream industry.

While De Beers did not comment on the reduction in prices or rejection rate cited by the diamantaires, a company official said the group had “provided (its) sightholder customers with a range of flexibility options to support them during a challenging period for rough diamond buyers”.

The official added that the flexibility was “not in relation to a slowdown in consumer demand for diamond jewellery, but rather some challenges specific to the industry’s midstream including high levels of wholesale diamond inventories and tightness in midstream liquidity”.

Exports of cut diamonds down
Reflecting the stress in the system, India’s exports of cut and polished diamonds dipped by 14% to a provisional 13.9 million carats in the first half of FY19 from 16.1 million carats in the same period of FY18, according to the commerce ministry-sponsored Gem and Jewellery Export Promotion Council (GJEPC). In value terms, exports in April-September 2019 shrank 19% from a year ago.

Given the acute stress in the midstream industry over the past year, sightholders such as publicly listed AsianStar said De Beers’ move to allow return of stones was “welcome”. “There has been a slowdown globally owing to the US-China trade war, weak economic growth in the Euro zone, closure of Hong Kong and slower growth back home,” said Vipul Shah, MD of AsianStar. “Given the multiplicity of these adverse factors, the move by De Beers is welcome.”

From a monopolistic control of the market until the 1980s, De Beers’ hold has loosened with the discovery of new mines in Russia, Australia and Canada. Russia’s Alrosa is the world’s largest miner by caratage. In 2018, Alrosa mined 36.7 million carats as compared to 35.3 million carats by De Beers and 18.4 million carats by Rio Tinto.

Pranay Narvekar, partner at gems and jewellery consulting firm Pharos Beam, estimates global output of roughs at 140-145 million carats this year, down from 148.4 million carats in 2018, owing to reduced production by De Beers.

Also Read

De Beers to cut rough production volume by 12% in 2019

Anil Agarwal keen to bring company that owns De Beers to India

De Beers expects India’s diamond demand to pick up

Diamond demand may grow like last year: De Beers

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service