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De Beers Eases Sightholder Buying Rules Amid Market Slump

July 16, 2024  |  Joshua Freedman

De Beers will expand its flexibility for this month’s sight as the miner responds to the market downturn by limiting supply rather than lowering prices. 

The company will allow sightholders to remove certain goods from allocations of rough diamonds and request larger buybacks than usual, it told clients last week. 

The July sight, which starts next Monday, comes amid rising inventories and falling prices in the polished sector, especially in India. De Beers’ customers expect the company to maintain rough-price levels to avoid flooding the market and having a further negative impact on polished. 

De Beers’ sales policies have been in the spotlight in recent crises because of the challenges manufacturers face deriving profits from the rough. The latest concessions apply to a broad range of sight goods but focus on items for which profitability has been especially tight, sources said. 

De Beers’ system of contract sales, which rewards sightholders that buy their full allocations, has also received criticism for putting pressure on the midstream to accumulate unwanted inventories.  

At the upcoming trading session, sightholders will be able to refuse up to half of lots in three boxes of medium- and higher-quality rough under 3 grainers (0.75 carats), according to a note De Beers sent to sightholders on Friday. Normally, failure to buy would result in sightholders’ allocations being reduced in future contract periods. 

Customers with beneficiation factories — cutting units in diamond-producing countries, such as Botswana — can remove lots from an additional 21 boxes, the note said. A lot is a subcategory of goods within a box. 

In addition, De Beers will allow sightholders to sell up to 30% of certain rough purchases by carat weight back to the miner without it affecting future allocations. This buyback concession — which is usually capped at 10% — will apply to 13 boxes as well as four categories of unaggregated goods from the miner’s Namibian operations. 

A De Beers spokesperson declined to comment on the details Monday but confirmed it was “providing sightholders with some elements of supply flexibility to support their requirements.” The adjustments came “in light of the prevailing industry conditions,” the note to sightholders said. 

Enhanced flexibility usually accompanies stable prices, as De Beers uses these mechanisms to limit sightholders’ losses without having to sell for less. Customers can choose to keep the most profitable items and leave the rest. 

Rough-market insiders expect sales at the sight to be under $200 million — down from $315 million in June 2024 and $411 million in July 2023 — as sightholders take advantage of the flexibility. July is traditionally a slower period for rough sales, with the market picking up in August as the industry prepares for the holiday season. De Beers will not publish a sales total for this sight, shifting instead to quarterly reporting. 

However, price reductions are necessary given the mismatch between rough and polished valuations, sightholders argued. The RapNet Diamond Index (RAPI™) for 1-carat polished goods — reflecting round, D to H, IF to VS2 diamonds — fell 3.6% in June and slumped 10.9% in the first half of the year. The declines for 0.30-carat items were even sharper. 

“They think flexibility is enough for months to come,” one market insider told Rapaport News on Monday. “Many don’t think this is the answer.”  

Image: A De Beers sightholder examining rough diamonds. (De Beers)

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