IDEX Online Rough Diamond Market Report: DTC Blocking Trade to Secondary Market

The Diamond Trading Company’s (DTC) first Sight of 2009 was expected to be different, and it was, perhaps more than anticipated. The expectations were for reduced supplies and lower prices – a sort of kinder, gentler DTC. Sightholders got the reductions, but at a price, as secondary market sales will take a blow.

In the first few days of the Sight, traders were not sure if prices were reduced, because of the looser packaging system. Instead of separating the boxes, similar rough were mixed together, forcing traders to take a much closer look at the goods – exactly what DTC Managing Director Varda Shine wanted.

It took Sightholders a few more days to come back with a verdict: improved assortments pushed prices down by a mid- to high-single digit (most quoted 5- 7%). A couple said the rough was offered at a fair market value and congratulated the DTC for responding to the market. Several others, however, said the goods are still priced high above rough diamonds from other producers. One Sightholder said prices were some 20 percent above market prices.

Demand on the secondary market was very low. A single line bill, meaning that the DTC did not break down charges by box, coupled with the open box policy declared by Shine, made trading in DTC boxes difficult. The premium, or illusion some will say, is offered for sealed DTC goods.

To make trading in boxes even more difficult, the DTC hinted that it will sell rough left on the table to non-Sightholders, although it is not clear in what framework it will happen. Will it be done through Diamdel, the natural choice, or will it be sold to willing ex-Sightholders who already went through the rigorous DTC selection process? This uncertainty, coupled with the lower prices of goods from other sources, the cash crunch and the uncertain future has resulted in very limited trade in DTC goods.

The bottom line - demand was sporadic at best, and very specific.

The DTC, clearly aware of cash flow problems and limited trade, was more than willing to accept rejections of rough, offering a very open “leave it on the table if you don’t need it/can’t manufacture it economically” policy. Therefore, it was very surprising to hear a number of Sightholders admit that they took goods they clearly know will generate a loss.

One Sightholder said he did so because he “felt uncomfortable.” Another felt he had no choice. A different explanation, really a rationalization of these views, was that at this stage, firms are willing to make “long term investments” in their relations with De Beers. This included companies of all walks.

While banks are tightening the grips on small firms - two recent closures in Israel were prompted by bounced checks of $11,000 and $6,000 respectively – Sightholders are not finding it too difficult to finance their purchases.

Nonetheless, a number of Sightholders did not even come to London to examine the rough diamonds. In a few cases, they just wanted the goods shipped to them. In another case, it looks like a Sightholder skipped the Sight altogether in light of major financial problems.

The next DTC Sight will take place February 23 - 27.