(IDEX Online) - Rough prices continued to rise in the past month, backed by stable demand by first-hand buyers. All major producers and suppliers to the market increased prices, with an overall effect of about 3 percent, as predicted by IDEX Online. Demand in the secondary market, was however lower. 

 

With the Indian traders mostly away on Diwali and wedding vacations - the market is only starting to return to activity these day - the impression was that the market “has frozen” as a number of insiders observed about the secondary market. That is to say that it currently is not willing to pay higher prices. This is especially true for the lower quality goods.

 

One major reason is the resistance to higher polished prices in Mumbai, with an expectation that prices will rise by only about 2-3 percent. Another reason is that even the smaller and medium-size manufacturers always have some stock of rough left over from before Diwali. With manufacturing not back yet in full swing (they’re still not sure that all their polishers will return to work), there is no incentive to pay higher prices for the goods.

 

It’s expected that it will take another two weeks or so before factories begin to work in earnest, even though the marriage season runs through to February.

 

The DTC hikes were joined by high prices at the BHP Billiton and Diamdel tenders. Strong demands were reported at both tenders with reports of “buoyant” prices and a sense of nervousness in the market. A manufacture that participated in the Diamdel tender said the prices were too high to be economical. Contrasted with the reports of low demand from India, the high prices at the tenders reflect demand for high end goods. In the case of Diamdel, they are also viewed as more political then a reflection of demand for bread and butter goods.

 

Traders that bought goods from Alrosa, an expensive source that didn’t increase prices, tried to increase premiums by some percentage points, an attempt that was mostly snubbed by the market.

 

Prices and Premiums

Currently, premiums on DTC boxes in the Indian market are at 4-6 percent on average. In some categories, like the −2 sieve sizes (-0.01 carat) and stars (-0.02 carat), which have been very hot, the premiums could go as high as 20 percent for VS+ quality goods.

 

The price of DTC’s 1st Col Rejns (H-L) was hiked by 10.5 percent to $42 p/c, and the Crystals 2.5-4 ct rose by 9.6 percent to $2,416 p/c. Among the fine boxes, Fine Z 4-8 gr went up by 3.6 percent to more than $850 p/c.

 

The commercial high boxes did not see any real change in prices, with the Commercial 2.5-4 ct box edging up less that 1 percent and the Select MB 2.5-4 ct being reduced by about 1 percent to $1,191 p/c.

 

Premiums on the boxes adjusted themselves to the price changes. The premium on the Crystals 2.5-4 ct box, for example, decreased from 8 percent to 3 percent. The Commons 2.5-10 ct, a preparers item, carried a 5 percent premium in the secondary market. MB High -3 gr +7 fetched a 6 percent premium.

 

Demands

At BHP Billiton, strong demand was seen in particular at the Specials Tender, where 10.8+ carat goods are offered. In the Spot Market Tender, demands stood out for 7-10 carat white and fancy-color goods.

 

DTC’s relatively large supply to the market, the Sight is estimated at $520-530 million, may have been a contributor to softer demand for the goods. While many hold the hope that polished prices will increase in the post Christmas period (IDEX Online’s Polished Diamond Index is already indicating a certain improvement), demand for the DTC boxes was low, decreasing from the demand seen in October.

 

The DTC drafted the business plan for this year in October 2009, before the better-than expected holiday season, so it set conservative targets for 2010. With runaway rough prices, De Beers may have stepped up production to meet demand and has therefore been able to offer a lot of ex-plan goods. This was especially evident in London, and less so in Botswana.

 

Outlook

While manufacturers are struggling with polished prices, they will be encouraged by the volume of sells and will pay more for their rough until the end of the year. IDEX Online forecasts that manufacturers will pay, on average, an additional 3-5 percent for their rough in the period.

 

 

Demand for DTC Boxes following Sight 9