That is why after offering to defer up to 50 percent of Sightholders' July allocations, and coupled with rejections and buy backs, the DTC July Sight was a small one, estimated at less than $400 million.

 

Full categories of goods were not sold at the last Sight: the Small Fancies, Cold & Brown Clivage and Fancy boxes. In addition, several of the Fine boxes, such as the Collection goods, and a number of the Colored boxes were not sold.

 

The prices at the DTC were not change significantly. Some boxes are up, others are down but the general policy of "price adjustments" remains in tact. From DTC's perspective, it seems, it's preferred to decrease supply than to decrease prices. The Colored Z 4-8grs box, for example, sold for $672.83 p/c, a 3.6 percent decline; however, it mainly reflected the lower composition of the box.

 

While prices were rather stable at De beers, buyers are getting the goods at a discount. These include the Chips 4-8 gr, which DTC listed at $871.52 p/c (+2.3% from the previous Sight), the Makeables High 3 gr +7 (DTC: $180.16 p/c, -8.4%) and the Commercial 2.5-4 ct box (DTC: $2,149.85

p/c, -2.1%) – all trading at below the price Sightholders paid. (See list of second market trading below).

 

Further proving that the DTC is expensive these days, at BHP Billiton's tenders prices are down nearly across the board.

 

The 4-8 grainers declined between 1.2 percent (4-8 gr MB Fancy, $505.08 p/c) to 8 percent (4-8 gr Z White $1,111.00 p/c), although 4-8gr CL/Lo White increased 0.7 percent to $204.81 p/c. (See table 2 for the full list of prices).

 

The declines at BHP better reflect demand in the market. The background is simple – on the back of runaway polished prices in the second quarter of 2011, prices of rough also increased. When the polished price bubble burst in July 2011, rough prices at DTC and Alrosa were not lowered.

 

Pressure to lower polished prices held until recently, when manufacturers realized that the only way to generate a turnover was to let go, and bring down prices, a move legitimatized by a couple of large – and stable – Indian manufacturers. The rest of the Indian market followed.

 

The resulting margin squeeze meant that expenses, mainly rough, had to be brought down. The result is less buying from DTC and Alrosa, and reduced prices at BHP and many of the mid-sized suppliers.

 

The decreased supply to the market was a welcomed move by many, mostly Diamond Trading Company (DTC) Sightholders. They did not like losing 5-15 percent on some of the goods.

 

More importantly, the market has no need for much rough these days, because of limited polished diamond demand and large inventories.

 

Outlook

Falling polished prices require that rough diamond prices adjust to the market realities. As discussed in a separate column (Breaking the Concrete Floor), rough prices outpace polished and a correction is needed.

 

As the just released Kimberley Process figures show, in 2011 production declined 3.4 percent but the price leaped 26.5 percent. This staggering price increase was not reflected with a similar increase in polished prices, which were up 17 percent in 2011. The need for lower rough prices is clear.

 

Therefore, we expect further adjustments to rough prices until a new balance is found.

 

Demand for Key DTC Boxes following July Sight Article Demand Remarks on Demand Fine 2.5-4 ct & Fine 5-14.8 ct Low demand for 2.5-4 ct and low demand for 5-14.8 ct Lower demand than last month. Trading below list Crystals 2.5-4 ct & Crystals5-14.8 ct Low demand for 5-14.8ct and medium demand for 2.5-4 ct Lower demand for 2.5-4 ct compared to previous Sight. Trading below list. Commercial 2.5-4 ct & Commercial 5-14.8 ct Low demand for 2.5-4 cts and low demand for 5-14.8 ct Lower demand compared to previous Sight. Trading below list. Spotted Sawables 4-8 gr Medium demand Same demand compared to previous Sight. Chips 4-8 gr Low demand Lower demand than last Sight. Trading below list. Colored Sawables 4-8 gr & Colored 2.5-14.8 ct Low demand for both sizes Lower demand compared to previous Sight. Makeables High 3 gr +7 Low demand Lower demand than previous Sight even after small correction. Trading below list. Preparers Low 3-6 gr Low demand Lower demand than previous Sight. Trading above list. 1st Color Rejections (H-L) +11/+7 Low demand Lower demand than previous sight. Trading at list. 1st Color Rejections (H-L) -7+3 No demand Unpopular box with no buyers.  Table 1

 

BHP Billiton June/July Spot Prices* Item May 2012 PriceP/C June/July PriceP/C % Change 2.5-6ct Z White $3,517.18 $3,425.00 (2.6%) 2.5-6ct Z/Low White $2,583.04 $2,583.05 0.0% 2.5-6ct MB High $3,112.00 $3,026.00 (2.8%) 2.5-6ct MB Low $2,603.72 $2,499.00 (4.0%) 2.5-6ct Fancy $1,637.00 $1,631.48 (0.3%) 2.5-6ct CLIV WHITE $1,503.00 $1,481.11 (1.5%)         2.5-10ct ZMC CTD $1,260.00 $1,127.00 (10.6%) 2.5-10ct ZMC BRN $1,207.00 $1,249.00 3.5% 2.5-10ct CL/Lo White $576.00 $601.91 4.5% 2.5-10ct CL/Lo BRN Unsold $169.76   .+2.5ct RJNS $105.18 $102.50 (2.5%)   4-8GR Z WHITE $1,207.00 $1,111.00 (8.0%) 4-8GR Z/LOW WHITE $862.00 $811.18 (5.9%) 4-8GR MB HIGH $966.00 $888.45 (8.0%) 4-8GR MB LOW $762.00 $715.11 (6.2%) 4-8GR MB FANCY $511.00 $505.08 (1.2%) 4-8GR CLIV WHITE $475.44 $456.00 (4.1%) 4-8GR ZMC BRN $325.00 $318.11 (2.1%) 4-8GR CL/LO  WHITE $203.40 $204.81 0.7% 4-8GR CL/LO BRN $72.72 $68.24 (6.2%)         +9-3GR Z WHITE $295.18 $278.50 (5.7%) +9-3GR Mb WHITE $242.18 $230.00 (5.0%) +9-3GR CLIV WHITE $142.44 $134.45 (5.6%) +9-3GR ZMC BRN $51.51 Unsold     +9-6GR ZMC CTD $192.00 $181.00 (5.7%) +9-8GR RJNS $35.35 $35.00 (1.0%) -9 OR $92.51 $79.00 (14.6%) Table 2 *All BHP Billiton price data collected from third parties