Marked by high premiums a month ago, the rough diamond market is seeing somewhat lower demand in the secondary market and declining premiums. A week after the DTC Sight, traders are offering large quantities of goods, without a whole lot of demand.

 

How did this happen? Buyers with the means to buy speculatively did so and pushed up the prices, rising as the rough kept changing hands. Prices kept rising until some of these goods were too expensive to manufacture.

 

In addition, about $1 billion worth of rough diamonds were sold in the market in August, resulting in a glut of goods.

 

• DTC Sight 7 is estimated wildly between $420 million to $470 million (we estimate it was on the lower side, no more then $450 million).

• Alrosa had two sales estimated at $200 million each. Prices were reportedly lowered and currently there is an oversupply of Russian rough.

• BHP Billiton sold about $40 million worth of goods, and traders are reporting that there are a lot of BHP goods on the market.

• Rio Tinto and Harry Winston supplied another $40 million of rough sourced from Diavik and Argyle. Buyers reported lower compositions by Rio as well as many goods offered at its tender.

• Juniors and secondary sources, offering mostly goods from Africa, sold an estimated $50 million worth of rough, perhaps a little more.

 Prices of boxes at Sight 7 were mostly higher compared to Sight 6. Higher Prices were a result of lower box composition, pushing up prices by 3-5 percent, and in part a real price hike. At first, buyers on the secondary market were willing to pay high premiums on many of the boxes, but this diminished over the following week. Many traders said that DTC boxes were overpriced.

 

Sightholders were surprised by the smaller size of the Sight. It is understood that unlike last month, when the Canadian goods were prominent, this month there were more goods from Botswana, partially explaining the lower box composition. However, the size of the Sight indicates that mining was not fully back to previous volumes.

 

Premium on the Fine 2.5-4 carat boxes, which enjoyed increased demand, started at about 8.5 percent before declining. List price for this box is ~$1,880 per carat, up from $1,800 at the previous Sight.

 

Crystals 2.5-4 carat, which were in short availability, sold at a 5-6 percent premium. Buyers complained about the low composition. Demand for the larger 5-10 carat Crystals was not high. The Commercial goods got a 10 percent premium. As noted, these premiums declines and eventually, due to strong price resistance, boxes were sold at cost.

 

Some boxes, such as the -7 goods, were sold below cost. The Melees sold at 1 percent below. The list price of both of these items was raised by the DTC. Demand seemed stronger for color, where supply is somewhat limited.

 

There was plenty of talk about the return of Alrosa to the market, with concern over the prices. It seems that Alrosa reached some sort of understanding with the Gokhran, allowing the Russian miner to sell goods at lower prices to its clients.

 

Outlook

The raised demand and liquidity sent the market into an unhealthy spin, resulting in overpriced goods that are not fully needed in the retail segment where polished prices are not rising. We are clearly beyond the musical chairs metaphor mentioned in our last report. The music stopped and some trades are holding goods that cannot turn a profit at this point in time. As an astute observer said, diamantaires are walking on unstable ground.

 

Coupled with Indian and Jewish holidays in the coming weeks, demand is expected to be low, especially if there won’t be an awakening in demand for polished diamonds.

 

Sight 8 is scheduled to take place September 29-October 2, squeezed between the Jewish holidays of Yom Kippur and Sukkoth. It will likely be a smaller Sight, valued at around $400 million.

 

Demand for key DTC boxes during and after Sight 7