As the industry gathered in Hong Kong for the Jewellery & Gem World (JWG) show this week, important talks about the diamond industry’s difficulties were happening elsewhere.
Executives from Alrosa, which continues to sell rough despite being cut off from much of the market, met with customers and other trade members in India and Dubai over the past few days to explain how they viewed the current challenges, insiders told Rapaport News this week.
Their message: The miner is in no rush to reduce rough prices. Instead, the policy of not flooding the market — a likely consequence of price reductions — will continue, according to the sources. Buyers will be able to choose whether to make purchases.
It’s unclear how long this policy will remain, as this largely depends on whether the crisis persists. One senior manufacturing executive said the message was the miner would maintain higher prices for “one or two years.” Others said it was likely only until the end of this year.
The executives also indicated they wanted the trade to play its part by not doing anything to devalue polished, according to some of the sources.
“They suggested we are partners — we keep the rough [prices steady] and you keep the polished,” said one person with knowledge of the meetings.
Dealers and manufacturers also expect De Beers to maintain prices at its sight next week. On Tuesday, the company told clients it would continue the enhanced flexibility that was in place at the last sight in July — a broad indication that it would not make significant price changes.
This, despite the two miners’ prices being some 15% to 25% higher than the open market, according to market estimates.
“[Output] on the mining side needs to be rationalized, and the miners are waking up to that reality,” a sightholder said Tuesday on condition of anonymity. “I feel like the winds have changed.”
Alrosa and De Beers declined to comment.
Manufacturing slowdown
Weak Chinese demand and mixed US orders led to an oversupply of polished once Indian manufacturers resumed production in early 2024 after last year’s voluntary freeze on rough imports.
With the situation deteriorating as the year progressed, India’s manufacturing sector slashed production by around 50% year on year in July and August. Some sources estimated the reduction to be as much as 60% to 70%. Manufacturers say production has remained at these low levels in September.
Manufacturing in Botswana has seen an even deeper slowdown, with factories shutting temporarily and companies repatriating their Indian workers. The cost of operating is higher than in India, while Botswana factories source rough mostly from De Beers. This means they are using more expensive rough than the market average.
“Only a few Botswana factories are operational currently,” said an executive at a manufacturer with significant exposure to Botswana.
These factors have led to a sharp drop in rough demand, prompting De Beers to offer extra flexibility at its July sight and to call off its scheduled August trading session. The company merged the August sale with October’s and rescheduled the November and December events.
De Beers also reduced its production plan for 2024 by 3 million carats. Alrosa has not provided such information since the Ukraine war began in 2022 and has not given public information about its sales schedule.
Other rough sellers are also offering fewer goods. Petra Diamonds deferred its August-September tender. Botswana’s state-owned Okavango Diamond Company (ODC) will confirm auction dates “on a sale-by-sale basis” due, among other things, to “current market conditions,” according to a note on its website.
Manufacturers that need rough can still obtain goods from the open market, as countries such as Angola continue to produce and sell, sources explained.
September sight
The downturn has deepened De Beers’ need to cater to sightholders’ changing requirements for rough.
On August 23, the company informed contract customers that they could reschedule delivery of their allotted goods for the rest of 2024, so long as they allocate at least 30% of the total value to each one of the three remaining sessions. These are the combined sights 7 and 8 in September, sight 9 in November, and sight 10 in December. However, once they have rescheduled their allocations, no more deferrals are permitted, according to the note, seen by Rapaport News.
On Tuesday, De Beers wrote to sightholders again, telling them that it would stick to the policy of allowing greater refusal options than usual and the opportunity to sell up to 30% of certain rough boxes back to the miner.
One unanswered question is how long the two miners can manage with reduced revenue while they resist the temptation to entice buyers with price cuts.
Alrosa, in which the Russian government owns a 33% stake, can sell goods to state depository Gokhran when times are hard. De Beers has mining conglomerate Anglo American behind it, but that owner wants to sell the diamond company.
As always, the core problem is the lack of end demand, another manufacturing executive argued.
“At this point, there is not enough demand to consume as [many] diamonds as [miners] are producing,” he said. “Either the production has to go down or the demand has to come [back]. I don’t foresee anything happening for the next couple of quarters.”
Image: Rough diamonds during the cutting and polishing process. (Alrosa)
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