DeBeers DTC raises rough prices 4.5% +++

[niceice]

According to Rapaport News today, the DeBeer''s Diamond Trading Company (the DTC) increased the price of rough 4.5% today with higher increases for two carat + sizes... This can have an immediate reaction upon the market in that some dealers will elect to increase the price of their current holdings so that they will be able to afford to replace their inventory in the weeks to come... That is one point of view, we prefer to market on a more positive note by maintaining the prices of our current holdings so that our merchandise is that much lower than newer stones emerging on the market during the weeks to come... Historically speaking, most of our suppliers will elect for the first option and increase prices now... Some mentioned that they were in the process of doing so today, but others indicated that they will be doing so on Monday because they needed to leave their offices early for the beginning of their Sabbath... Head''s up for those of you "waiting for just the right stone to emerge on the market" it is likely to cost you more in the weeks to come! Don''t shoot the messenger

Add to this the fact that there is currently a labor strike in Israel which is preventing diamonds from being imported or exported there is likely to be an interesting twist involving production, prices and availibility in the weeks to come... For those who are wondering, Tel Aviv and Ramit Gan, Israel are major production centers for the world diamond trade... Diamond rough is imported and finished diamonds are exported (primarily)...

 

[mdx]

----------------
! Don't shoot the messenger

R&T
If you bring bad news like that, We will have to shoot you

Wayne

 

[kiwifuz]

So then I'll view this as something to show my boyfriend to make him hurry and buy me my ring

 

[Paul-Antwerp]

I do not know if it is useful to look at prices of polished diamonds on such a short term, although the De Beers price hike will certainly have an effect.

For De Beers, it is very important to announce regular price increases, since it creates an image that the price of diamonds only goes in one direction, up, and that De Beers is the main motor behind this upward movement.

Over the last years, De Beers has gone through a major transition, and part of this is translated in pricing strategies, that may have a longer term goal.

For De Beers, it has become more important that their suppliers are the strongest players in the market, with a serious manufacturing capacity and a big downstream involvement in marketing and publicity.

They have pushed their sightholders to go more downstream by introducing the Supplier-of-Choice-strategy, which is right now ending with the choice of new sightholders and the erasure of sightholder-status for other clients. The whole process of Supplier of Choice, from its announcement to the final choice of the new sightholders now, has created a period of turmoil in the diamond market. Because the European Union last year for some time postponed its approval of the strategy, this transition period has become longer, and many people in the market may not even see it as a transitional situation anymore.

What has happened? Well, first, these last years, the pricing of De Beers, compared to the outside-market, were very attractive, with some boxes fetching immediate premiums of 10%, just by re-selling them in Antwerp. Why? Probably because De Beers wanted to show their potential sightholders that they are very attractive suppliers, and that they should try to maintain their sightholder-status or, in the case of an outsider, try to become a sightholder.

What did most current and potential sightholders do? Current sightholders bought as much as they could, thus creating an oversupply of polished on the market. All of them also developed downstream-marketing-schemes, in which they tried to sell more in retail-markets and less in wholesale-markets like Antwerp or Tel Aviv.

By going downstream, they increased their marketing and selling expenses, but this was offset by a higher total margin.

Now and in the following weeks, the whole situation will change. There is already rumour that some established sightholders have been taken off the list last week. Most of them are dealers, who used to be very important in re-selling De Beers' rough to smaller manufacturers.

Also, the selection of new sightholders is in its last phase, and we may expect an announcement of this in the following weeks, with the new sightholder status taking effect from July onwards.

What will be the real effect of this week's De Beers price raise? Well, if they are selling less to dealers, and more to manufacturers, they are already taking the margin of that dealer, and this part should have no effect on the prices on the retail market.

Also, part of their price hike will also be in the ranges where they were clearly cheaper than other suppliers. This will have an effect for sightholders, but not for non-sightholders. It could be that these sightholders used this extra margin of the last years to invest in their downstream marketing and publicity. If so, they will be forced to raise their prices.

On the other hand, plenty of other manufacturers, who are not sightholders are still in this market too. And like I said before, with a lot of manufacturers trying to show themselves as very important, there is a serious oversupply of diamonds available in the retail markets, with the biggest one being the U.S.

Therefore, I do not expect an immediate raise in prices, unless for very rare stones.

In the long run, however, I expect an increase in worldwide demand, which is not followed by sufficient new mines coming into production. Therefore, I foresee a serious long term price increase of diamonds.

Live long,

Paul

 

[fire&ice]

What is a sightholder?

 

[Paul-Antwerp]

Sorry for being too technical.

A sightholder is a customer of De Beers.

Every 5 weeks, these customers are invited to come and buy. Such an event is called a sight, and the somewhat 120 customers invited are the sightholders.

Paul

 

[dimonbob]

Paul is being nice.

De Beers invites the people on the special list, the sightholders, to come and bring money. These sightholders are major diamond wholesalers who must come to the De Beers party every 5 weeks. They are given a box of rough diamonds that they may inspect and can either buy the whole box or not. If they buy, they pay in full, now! If they turn down the box, they are not invited back to the party. How much does each box cost? Who knows but it is probably more than any of us here on pricescope will ever earn in a lifetime. These sightholders cannot have a cash flow problem. They have to come up with big bucks every 5 weeks.
Can you imagine paying $1 million for a box today and the next day selling it unopened for a 10% profit? $100,000!
Have a nice day!

 

[niceice]

Paul IS being nice

As well he should be since DB probably monitors these threads as much as we do... You would be surprised how deep their interest lies in the internet as a market for diamonds... Awhile back one of our suppliers who is a primary site holder was fined 40% of his allocation and the reason given was that he was selling to us and Blue Nile... He was told "we warned you before about selling to internet only dealers and you've ignored our statements... And if you think that we don't know where the diamonds we sell you end up, you're very, very wrong..." Why do you think we opened a store? With our volume, we certainly didn't need to!

There are about 100 site holders at the moment, DeBeers has indicated that they would like to trim the fat by about 50%. They hold a site sale in London every five weeks, attendance is by invitation and those invitations can be revoked with out explanation. DeBeers changed names last year and is now known as the Diamond Trading Company, the DTC... They have begun to sell finished stones and many of the ideal cut diamonds that we sell were purchased from the DTC by the site holders we purchase from as finished goods, this seems to be the trend more and more... Depending on which source you want to believe, their control over the market ranges from 80 - 91% and they seem to have their fingers pretty deep into the remaining 20 - 10% that they aren't supposed to control as well...

We respectively disagree with Paul's opinion that the 4.5% increase levied by the DTC will not have a direct effect on the market... Historically speaking when DeBeers has raised the price they charge for diamonds, the remainder of the market - the portion which the DTC refers to as "the blackmarket"

has responded by increasing their prices as well... Think back to the mid-80's when DeBeers imposed a stiff price increase in response to an attempt by the Japanese to "corner the market"... We thought that the other rough suppliers would try to pick up the slack by offering lower prices and instead they responded by matching the DeBeers price increase to the penny...

There is also rumor that the South African Govt. is going to impose an excise tax of some sort that is also likely to have an effect on diamond prices if it is enacted... Did somebody else read that article? Was it an 8% tax or are we recalling the wrong percent?

There are of course the Canadian diamond mines that have recently emerged on the market in the past few years, but the past few times we have evaluated the production, the combination of proportions have failed to meet our selection criteria... Which leaves us and the rest of the ideal world surfing the DeBeer's Pipe Line...

 

[fire&ice]

For example, who would a "siteholder" be? Zales conglomerate type? Or cutting houses? or select dealers? Would say...someone like Fred C be a siteholder?

 

[Paul-Antwerp]

Robin, Todd, Bob,

This is not a matter of being nice. I have no connections to De Beers, and it would take more than one miracle before I could ever be a sightholder. I would not mind if it would become true, but I am not counting on it to happen. After all, it would mean that I would be able to spend about 2 million $ minimum per sight-cycle.

However, I do stand behind my prediction that the current price-increase of De Beers will have a minimum to none effect on the retail level.

We for one stand behind our current pricing, and do not intend to adapt it. This means that our prices are linked to the Rapaport-price-list, and if this list will change, we will go along with it. It might well be that there will be a minor change in the list, but I do not expect an overall change in the whole list.

I truly wonder how De Beers is going to tackle its main problem. If you take the average clarity of the goods, that they are mining or taking from their contract-producers, this is (not counting industrial goods) in the range of SI2 to I1. With all their efforts going downstream, they have created an enormous competition in the high colour-high clarity-range, but this is not helping them in the bulk of their goods. I think that we should pay attention to their strategy, and keep in mind that it is in their interest to sell a majority of goods that are at the border of eye-clean.

Live long,

Paul

 

[barry]

Paul;

I agree with you. The impact at the retail level
will be minimal, if at all. Keep in mind that DTC
has major competition from Leviev, who is a force
in the rough and polished markets.

Barry
www.superbcert.com

 

[niceice]

----------------
On 5/4/2003 4:12:36 PM Paul-Antwerp wrote:
We for one stand behind our current pricing, and do not intend to adapt it. This means that our prices are linked to the Rapaport-price-list, and if this list will change, we will go along with it. It might well be that there will be a minor change in the list, but I do not expect an overall change in the whole list.

----------------

If you base your prices on Rap and Rap is a reflection of Rap, then it stands to reason that within the next one or two site cycles (every five weeks) then Rap prices are going to change... If the site holders are going to be paying an additional 4.5% for the rough diamonds that they buy, what makes you think that they are not going to pass those prices on to their customers? And if they pass those prices on to their customers, what makes you think those price increases aren't going to be passed on to the end consumer? Most of the internet dealers aren't even making 4 - 5% on the diamonds that they sell, do you think that they're going to go in the hole in an effort to maintain prices? Of course not. Rap prices will increase accordingly as new material reaches the market place, but the people buying diamonds at that time won't necessarily be aware of it because there is nothing readily available for them to look back on...

We commend you Paul for not increasing your diamond prices now to compensate for the price increase, it is refreshing

 

[Paul-Antwerp]

It takes two to tango.

Even if suppliers will try to pass on this price-increase, it remains a question whether the next level will accept that.

Recent studies by various analysts in the diamond business show that there is a considerably higher stock volume in retail markets, most of this in the U.S. Basically, prices will only go up if that over-stock gets sold. Of course, in some size-colour-clarity-cut-combinations, there is a shortage, and there, we will see an immediate effect.

It is also noteworthy that last week's sight was about 40% smaller than those of the last months. This is also linked to the current situation of oversupply.

Anyway, the future will tell,

Live long,

Paul

 

[Rhino]

R&T,

Very intersting comments concerning Inet only vs Bricks and Mortars. While I am not in favor of higher prices I am in like the idea of those who are looking out for us who have put in the blood sweat & tears of operating and maintaining an established bricks and mortar store vs those who work out of their pajamas.

Peace,
Rhino

 

[urbanite]

A wonderful source of info is matt hart's
Diamond: the History of a Cold Blooded Love Affair.

Available at your local bookstore. The title sounds nefarious, and in part thats true; yet the overall impression is fascinating. It walks you though the world of all players; from siteholders on down the food chain to miners along the banks of the amazon.

 

[Boulder]

As are many others, any estimate of how much this increase will trickle down to consumers and at what rate? I'm in the market for a diamond, but was planning on holding out until August. Don't know if I should reconsider based on this increase in rough price. I guess none of us has a magic crystal ball...

 

[niceice]

We spoke with one of our primary suppliers for the first time since the increase. The first words out of this mouth were "The DTC raised the price of diamonds something like 7% last week" to which we responded "actually it was something like 4.5% but that's okay". His expectations are as follows... He expects to pay the market increase at the next site sale which will occur at the end of the month... He expects his production to reach the market around the early part of June and indicated that the new production will reflect the new prices if indeed the DTC holds true to the price increase...

We agree that supply and demand has an effect on the price of diamonds, which is why as Paul indicated, the DTC reduced the amount of diamonds they released at the site sale last week by approximately 40%. Shorten the supply and increase the prices... The DTC has been steadily reducing the amount of diamond rough that they release at the site sales for the past few years. They have also been controlling the release of high color / high clarity rough to maintain the prices for those items. Unlike the majority of other markets, the diamond market is largely controlled by an active cartel, when they want to raise prices, they do and historically speaking they maintain the price increases by withholding diamonds from the market. Why do you think that the DTC operates out of London? They'd all go to jail for operating a business in this manner from within the United States. To their credit, they managed to maintain global diamond prices following the events of 9/11 and the shake-up of the stock market caused by that event and the collapse / exposure of Enron and WorldCom...

Obviously nobody knows for sure what will happen in the next few weeks, we certainly don't have the magic crystal ball. However, historically speaking diamond prices have increased across the board when DeBeers have announced price increases like this one. We thought that the diamond buying public would appreciate the "head's up" and the opportunity to purchase their diamond before price hike takes effect, rather than be caught off-guard by the price increase because many people have a specific budget set aside for their diamond purchase and are hoping to obtain a specific combination of characteristics... Our experience has been that many of our clients tend to procrastinate for no specific reason other than time and thought they would like to know that in this specific instance, time may not be on their side in terms of price... Diamond prices have remained pretty steady for the past two years with no major increases, this appears to be the first... It may be an indication that the giant is waking from his sleep, or it may be an attempt by the DTC to "feel up" the market... We do know that we've substantially thinned the profit margins of our suppliers over the past few years by demanding volume discounts and that many of them aren't making enough to absorb the 4.5% price increase, thus we expect diamond prices to increase... And most internet dealers aren't making enough to absorb the price increase either, we're certainly not going to "eat it" and thus we expect the prices that the public pay for diamonds to increase accordingly. We plan to hold the prices of our current inventory because those items were purchased before the price increase took effect, however other dealers are likely to increase their prices to adjust for the future cost of their inventory...

 

[Boulder]

Robin & Todd, thanks so much for such a detailed response to my question. I'll have to factor these recent events into my decision making process. I had planned on not purchasing a diamond for an e-ring until August, but I may have to push up the time frame of the purchase. Maybe I could purchase the diamond now and hold off until the setting later... I have been planning on purchasing via the internet, so my hope was to buy both and have the diamond mounted before I received it. I guess there's always the possibility of shipping the diamond back after a few months to have it mounted, though I'm leery of shipping an item such as this multiple times. Would a dealer hold onto a diamond for a month or two after purchase before having it placed in a setting. It looks like I have some thinking ahead of me...