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How a tough Indian market is making De Beers change its policy

Publishing Date : 18 November, 2019

Author : TLHABO KGOSIEMANG

According to industry circles, De Beers has recently allowed sightholders to return around a fifth or more of what they purchased across certain categories as its sight’ (as the ritual is called), besides cutting prices of the roughs by 5 per cent on average, to support them amid a crisis in India’s midstream, or diamond polishing industry.


For the first time, De Beers- once known for its formidable clout- is changing a quaint practice that marked the secretive world of diamonds. In a major shift, the 31-year-old De Beers is letting diamond houses return some of the rough stones sold by the group. It’s a sign, traders say, of a slow market and a probable decline in De Beers’ control over the supply of roughs.


For decades, representatives of chosen diamond houses assembled in a room, and each was given a box of diamonds- a mix of good and lesser quality rough stones. The buyers, called ‘sightholders’, took the box without a word- accepting whatever stones De Beers offered. The ritual, which took place in London, later moved to Botswana after the family that controlled the group sold a chunk of its stake. India is the global hub for cutting and polishing roughs, with an estimated 9 out of 10 diamonds processed by the country being polished in Surat, and to a much lesser extent in Mumbai.


According to Economic Times, buyers allowed to return up to 20 per cent of stones. Thanks to this over concentration, the industry has been grappling with an oversupply of polished inventory and tight liquidity conditions that have plagued other sectors as well, including auto and realty. ‘’Traditionally, the rejection rate has been 10 per cent and that too is very select category of roughs. This month, sightholders had the flexibility to return around 20 per cent of the stones across more categories’’ said Anoop Mehta, Director of Mohit Diamonds, one of over 30 Indian sightholders.


Another sightholder said rough prices this month were reduced on average by 5 per cent, in addition to the higher rejection rate permitted. In the October cycle, the rejection rate was 30 per cent, he said. Sightholders cannot reject the entire box. However, they were given the flexibility to defer the purchase of the full box by a few months.


De Beers sells rough diamonds through 10 events ‘sights’ annually in Botswana where its 80-odd sightholders are given a box containing diamonds filled in plastic bags. In each of the past three sales cycles, culminating in the one on October 2, De Beers made less than 300 Million US Dollars- which Bloomberg termed as being unprecedented citing data going back to 2016. This is being attributed to the financial stress and oversupply in India’s midstream industry.


While De Beers did not comment on the reduction in prices or rejection rate cited by the diamantaries, a company official said the group had ‘’provided its sightholder customers with a range of flexibility options to support them during a challenging period for rough diamond buyers, this is according to Economic Times.


ET said the official added that the flexibility was ‘’not in relation to a slowdown in consumer demand for diamond jewellery, but rather some challenges specific to the industry’s midstream including high levels of wholesale diamond inventories and tightness in midstream liquidity’’.
Reflecting the stress in the system, India’s exports of cut and polished diamonds dipped by 14 per cent to a provisional 13.9 million carats in the first half of FY19, from 16.1 million carats in the same period of FY18, according to the commerce ministry-sponsored Gem and Jewellery Export Promotion Council (GJEPC). In value terms, exports in April-September 2019 shrank 19 per cent from a year ago.


Given the acute stress in the midstream industry over the past year, sightholders such as publicly listed AsianStar said De Beers’ move to allow return of stones was ‘’welcome’’. ‘’There has been a slowdown globally owing to the US-China trade war, weak economic growth in the Euro zone, closure of Hong Kong and slower growth back home,’’ said Vipul Shah, Managing Director of Asian Star. ‘’Given the multiplicity of these adverse factors, the move by De Beers is welcome.’’


From a monopolistic control of the market until the 1980s, De Beers’ hold has loosened with the discovery of new mines in Russia, Australia and Canada. Russia’s Alrosa is the world’s largest miner by caratage. In 2018, Alrosa mined 36.7 million carats as compared to 35.3 million carats by De Beers and 18.4 million carats by Rio Tinto. Pranay Narvekar, partner at gems and jewellery consulting firm Pharos Beam, estimates global output of roughs at 140-145 million carats this year, down from 148.4 million carats in 2018, owing to reduced production by De Beers.

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