The Diamond Trading Company’s (DTC) ten and last Sight of 2010 is estimated at less than $400 million. According to the ITO (Intention To Offer - the planned allocation to each Sightholder at each Sight), the Sight was expected to total only about $190 million, according to industry estimates.

 

The remainder of the goods were mainly ex-plan goods, mostly (by volume) Indian goods, a supply that followed very high pre-Sight requests. All ex-plan goods were offered at London, none in Africa.

 

Prices and assortments of the boxes were largely unchanged. On the market, while limited trading took place in Antwerp and Israel - resulting in premiums of 4-5 percent on average - in India the boxes fetched anywhere from 7 percent to 10 percent above list price.

 

So while ‘Indian’ goods below 3 grainers, for example Makeables, traded for 10 percent above list, other items, such as 2+ carats Crystals sold at list price, which translates to a loss (Sightholders pay 1 percent to the brokers).

 

Prices were increased for the 3 Color MB 4-8 grs, a box that was not seen often this year, as we understand. The box sold for about $523 p/c, rising 66 percent. The 1-3C Mixed Z +11-8grs increased 6.3 percent, as did the Common Rejn -10cts box.

 

Conversely, the Preparing Cubes -10 Ct softened to $382 p/c and the price of the Maccles 4-8 grs box were lowered about 1 percent to $524 p/c.

 

The DTC continued to be the lower cost supplier to the market. Alrosa, by comparison, raised prices at its latest offering. There, deciphering the true cost is tricky; however the broad consensus is that prices were hiked by 8-10 percent.

 

The expectation in the market is that the January 2011 Sight will be a large one, leading to active trading in the market. The size is an outcome of the increase in De Beers' production in Africa and deferred supply from 2010 to 2011. Sightholders had the option to spread this allocation through 2011, but largely did not ask to do so. On top of this differed supply, many Sightholders asked for additional goods for Sight 1 of 2011. One possible reason is the contract renewal.

 

The Year in Review

2010, was a good year overall, mostly its first half, breaking from the earlier gloomy predictions. Traders were hungry for the goods, which was reflected in the rising premiums and subsequent rise in producer prices. That led to a very tough situation in the past few months. Rough was so far out of sync with polished that margins were eroded to the point of non-profitability.

 

It is interesting to compare year-end box prices to last year and to pre-crisis prices. Cubes 3 grs +5, with a current list price of $130 p/c, increased almost 28 percent from Sight 10 2009, but is still below the $133 p/c list price of July 2008. Or the Commercial 5-14.8 ct, which increased in the past year by 23.7 percent to $3,089 p/c. It is yet to meet the $3,170 paid for in July 2008.

 

MB Clivage 3gr+7 rose in the past year and half from $78 p/c to 82.23.

 

We can learn from this that where Indian goods are concerned, prices just about caught up with the pre-crisis high level prices. Another way of looking at this: India is a market to its own. Especially since rough is not just a raw material to make a consumer product out of, it is often a commodity used in a wider financial play by traders that view the U.S. dollar as their main product.

 

Another factor in pushing up prices was the many tenders. It seems that every miner, no matter the size, has a tender. Everyone except Laniado was in the game this year – from De Beers and Alrosa to Mbada. In someway, as De Beers' market share continues to shrink, this serves as an added symbol to its diminishing dominance in the market.

 

DTC supplied the market with about $5.1 billion worth of rough in 2010 and Alrosa added another $3.5 billion of goods. According to one industry insider, the larger diamond firms rounded up goods, leaving a lot less for the smaller companies. This in turn created a feeling of shortages in the market. And where there is a shortage, there is a willingness to pay more.

 

Producer prices followed premiums to the point that premiums started to shrink. At that point, just a month ago, the price of some of the Angolan goods started to pull back a few percentage points. Have we reached equilibrium?

 

Outlook

After a year of double digit price increases, Harry Winston Diamonds said recently that it expects prices of rough to keep rising in 2011, but at a much more moderate rate – 2-4 percent for the entire year. Conventional wisdom holds that prices will continue to rise and the rate will be somewhat set by polished diamonds. If demand for polished diamonds will warm up and prices improve, it would allow continued rough price increases.

 

But what if polished prices halt? What if the first DTC Sight of 2011 is truly large, and follows a not-that-good holiday season? Is there a chance that price of rough will decline? The market largely doubts that, saying that none of the miners reduce prices. The option, however, is always there.

 

Because of the DTC Sight contract renewal, some expect the coming year to be a tough one. It will be so for the Sightholders, the aspiring Sightholders but mostly for those that will lose their Sight. Among the winners may be a number of new Sightholders in Botswana.

 

Demand for DTC Boxes, Sight 10