Industry Analysis

De Beers’ Sight Highlights Market Disarray


Many diamond dealers are facing high rough inventories in all sizes and qualities, except the largest goods. Some estimates place the stock overhang at three to four months. Photo by Robert Weldon/GIA

De Beers’ Oct. 5-8 sight was estimated at between $250 million and $400 million, but that figure is complicated by a significant percentage of refusals and, reportedly, discounted side deals the company made with several large clients shortly beforehand.

While the sight disappointed most De Beers’ sightholders, who were expecting further cuts in prices (they wanted at least 10% across the board), a core group of clients holding huge inventories opposed any price cuts out of fear of devaluing their stocks. There was little consensus regarding the original allocation totals once the sight was over, and agreement only that most manufacturers had little appetite for rough that could not be cut profitably. Dealers were also reportedly unhappy over reports that De Beers had sold previously refused goods to certain clients at reduced prices.

The issue most dealers are facing is high rough inventories in all sizes and qualities, except the largest goods. Some estimates place the stock overhang at three to four months.

This was the final De Beers’ sight for goods destined to be sold for Christmas. The Nov. 2-6 sight occurs just on the eve of India’s Diwali festival, when diamond companies traditionally close for two or three weeks. Analysts expect many Indian diamond operations to remain closed after Diwali, potentially through the rest of the year.

De Beers has sold 26% fewer diamonds into the market during the first half of 2015, compared to the same period last year, and will likely end the year selling about 28 million carats, nearly 5 million down from last year’s total of 32.7 million carats.

Alrosa, the Russian producer that is the world’s largest by volume, said its first half sales this year totaled just under 18 million carats with revenues of $2.1 billion, which is close to last year’s results. The company said, however, that revenues will likely fall short of that total in the second half because of the September price cuts and a provision that allows clients to refuse or defer purchases.

Alrosa sells the vast majority of its production – 38.3 million carats last year – in regular sales similar to De Beers’ sights, through contracted sales and tenders.

The Russian company’s sales last year totaled $3.7 billion, but because of the diamond market difficulties, the company sold just over $232 million to Gokhran, the Russian government stockpiling agency, instead of selling into the market. Gokhran, in turn, holds periodic auctions of its diamond stocks.

AUCTIONS

Both Christie’s and Sotheby’s reported that the market remains robust for ultra-high-end jewels as the fall season got under way.

One lot in Sotheby’s Oct. 7 Hong Kong auction set a record: A 27.68 carat (ct.) Kashmir sapphire achieved a record per-carat price $242,145 ($6.7 million total). Two other top lots included a natural gray pearl necklace that sold for $5.26 million and the Viscountess Harcourt Diamond Necklace, produced by Tiffany & Co. in the 1880s, went back to Tiffany for $1.55 million.

First half jewelry sales for Christies ($313.2 million) and Sotheby’s ($286 million) were a little short of last year’s pace. Looking at the pre-sale estimates, expectations for top stones have eased from last year’s record prices ($120,000 to $130,000 per carat for large D flawless, compared to $140,000 to $160,000 last year). However, last year saw some ultra-extraordinary pieces come up for auction.

On Nov. 10, Christie’s will auction a 16.08 ct. cushion-shaped Fancy Vivid pink diamond, which is expected to realize $23 to $28 million. As a run-up to that sale, the auction house compiled a gallery of extraordinary fancy colored diamonds it has sold in recent years.

HONG KONG

The prevailing takeaway from the Sept. 16-23 Hong Kong Gem and Jewellery Show is that business exceeded low expectations.

In diamonds, there was a lot of inter-dealer buying at the onset of the show – mainly stronger firms buying goods at deep discounts from dealers who were in difficulty and needed cash.

Actual buying from retailers and jewelry manufacturers was above expectations and generally concentrated into very specific quality categories (i,e. SI and good I1 clarities) for very specific inventory needs. All told, business was down 40% to 70% from last year for most dealers.

More buyers than usual came from the U.S., Middle East and Europe, presumably to take advantage of perceived bargains. Apart from the inter-dealer activity already mentioned, there was not a great deal of give on prices, meaning that many deals were not completed until the very end of the show. As a result, manufacturers were able to get acceptable prices for the goods they sold and buyers could get some needed inventory.

High-end dealers were showing fewer large colorless stones, but more fancy intense and vivid yellows.

Colored stones were in demand, but many buyers felt prices for better quality ruby, sapphire and emerald were unrealistic, given the reduced demand from China and other key gem markets. This pushed demand for substitute colored gems, such as rubellite and spinel for ruby, Tanzanite for sapphire and peridot and green tourmaline for emerald.

Russell Shor is senior industry analyst at GIA in Carlsbad.