A combination of a large Sight, large appetites, an “okay” holiday season and an understanding that 2010 was a very good year for many, have all connected to form a wildfire in the rough diamond sector.

 

The ~$650 million DTC Sight was larger than most Sights in the past couple of years, but that was expected. Somewhat surprising were the very high demands for almost all categories. Demand for Indian goods was the strongest, and as the table at the bottom shows, very high demands from the secondary market were seen for the DTC Fine, Colored Sawables and Makeables High 3 gr +7 boxes.

 

The premiums of the Fine boxes was about 10 percent above the DTC list price, Cubs fetched +12 percent, Chips 4-8 gr +13 percent and some of the Rejection boxes fetched 12-13 percent premiums. The Crystal boxes, which were in higher demand, yet not the hottest item, were sold with a 4 percent mark up. They were joined by the Commercial boxes, which went for an extra 8-9 percent.

 

Just to exemplify the competitiveness for the boxes, premiums increased some 5 percent between the start of the Sight and the beginning of the following week.

 

While the DTC did not increase prices, traders are betting on future price increases   at Sight two. There is also a feeling that one of the demand drivers is a need to replenish stocks, mainly in India.  Manufacturers in Surat, however, are reportedly only churning out about half of their past capacity. This does not mean stock replenishment is not needed. Instead, some are viewing it more as a move to secure goods at current prices, before yet another hike.

 

Prices at BHP Billiton's Spot 122 in January increased, on average, by about 6 percent. The total value of the tenders, Spot and Term Market is estimated at just shy of $125 million. Demand was clear for -9 Run of Mine goods, with prices rising some 16 percent. The same price hike was seen for the low cost +9 -8 gr rejection goods.

 

High-end items also did well, with the 4-8 gr white sawable rising 7 percent to more than $1,115 p/c and the 4-8 gr white makeable low rising 11 percent to more than $750 p/c.

 

The list goes on, but the point is clear – the price hikes that the DTC initiated in December 2010 hit the spot and caused the secondary market to calm. Sadly, this effect was short lived.

 

Traders who saw the BHP Billiton goods said that the price increase reflected more than just a strong market. The Items on offer were good looking and high color.

 

What will traders do next? This all depends on a number of factors. On the retail front it will depend on diamond jewelry sales for Valentine's Day in the U.S. and the New Year in China (celebrated this week). On the supply side, the price hike level that DTC will unleash on the market will also be a factor. Another sharp price hike will limit trading of its boxes. A good retail result will encourage purchases. The tension is between those two ends.

 

Outlook

Demand will continue to be strong, especially with the larger companies continuing to buy in growing volume, which is creating a feeling of shortage among the mid- to smaller-size firms. Reports from the U.S. and Hong Kong are that orders for the holidays are strong, which will further back demand.

 

The bottleneck may be in Surat. Labor recruitment and training is slower than previously anticipated. If that gets worked out, and with banks providing the necessary financing, manufacturers will get down to the grindstone and whip out more polished.

 

Demand for DTC Boxes Sight 1, 2011