Rapaport Market Comments???
- Thread starter rbjd
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I'm guessing the reason the wholesalers are sitting on their stock is that they are trying to drive the market price up? I'd be curious to know if this is how DeBeers exercises pressure in the market or if these are independent decisions designed to influence demand and price.
mike04456
Brilliant_Rock
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The diamond market, like most other markets these days, is seriously spooked by the prospect of war. Jewelry sales are soft, so what gets cut isn't necessarily going to sell. My understanding is that what's going on is an attempt to hold the price steady rather than drive it up.
De Beers historically did things like this to maintain market stability, but they have backed away from it in recent years. It's likely just a reaction of the manufacturers to the market. Keep in mind that De Beers only controls about 60% of the rough diamond market nowadays (down from 90% at their peak). There are lots of other people to get rough from, though De Beers remains the biggest.
De Beers historically did things like this to maintain market stability, but they have backed away from it in recent years. It's likely just a reaction of the manufacturers to the market. Keep in mind that De Beers only controls about 60% of the rough diamond market nowadays (down from 90% at their peak). There are lots of other people to get rough from, though De Beers remains the biggest.
niceice
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DeBeers - now the Diamond Trading Company (DTC) maintains the stability of the diamond market by withholding the amount of rough that they release to accomodate the rise and fall of the stock market. Those of us who have purchased diamonds should probably be glad that they do because otherwise that 10K rock you bought a few years back could go for $10 tomorrow morning... Wow! There's an inventory crisis that we don't want to see
After the events of 9/11 the DTC reduced the amount of rough that they release by about 50% then they cut it back a little more after the announcement of the Enron / WorldCom problems... Every five weeks the DTC holds a "site sale" at their offices in London and new goods are released to the cutters and then they will emerge on the open market a few weeks later... Each site sale seems to target a specific combination of size, color and clarity and includes just enough "bread and butter" stones to keep the day to day market going... There doesn't seem to be any predictable rhyme or reason to what DeBeers will release, but let us tell you that we'd love to figure out what they'll be releasing / when because we'd make some serious $$$
so if anybody has a crystal ball they'd like to sell, we might be interested...
After the events of 9/11 the DTC reduced the amount of rough that they release by about 50% then they cut it back a little more after the announcement of the Enron / WorldCom problems... Every five weeks the DTC holds a "site sale" at their offices in London and new goods are released to the cutters and then they will emerge on the open market a few weeks later... Each site sale seems to target a specific combination of size, color and clarity and includes just enough "bread and butter" stones to keep the day to day market going... There doesn't seem to be any predictable rhyme or reason to what DeBeers will release, but let us tell you that we'd love to figure out what they'll be releasing / when because we'd make some serious $$$
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When Rapaport talks about 'market' in this report, he is not refering to the consumer market, but to wholesaler markets like Antwerp, Tel Aviv and maybe New York.
'Sightholders not selling on market' is a reference to the Supplier of Choice-program of DTC (De Beers'). DTC is pushing their customers (the sightholders) to take their organisations and their marketing more downstream, and they are in the process of selecting who remains a sightholder mainly on the efforts taken to sell more to the consumer, and not to the wholesale-market.
In order to keep their sightholder-status, they are trying to show the DTC a maximum of sales and marketing-programs downstream, and it is obvious that the easier to sell-goods are not being sold to wholesalers anymore.
5/4-goods are a great example of this, since their overweight makes them very popular stones on the retail market.
I hope that this is clear,
Paul
'Sightholders not selling on market' is a reference to the Supplier of Choice-program of DTC (De Beers'). DTC is pushing their customers (the sightholders) to take their organisations and their marketing more downstream, and they are in the process of selecting who remains a sightholder mainly on the efforts taken to sell more to the consumer, and not to the wholesale-market.
In order to keep their sightholder-status, they are trying to show the DTC a maximum of sales and marketing-programs downstream, and it is obvious that the easier to sell-goods are not being sold to wholesalers anymore.
5/4-goods are a great example of this, since their overweight makes them very popular stones on the retail market.
I hope that this is clear,
Paul
pricescope
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It is clear for me now, Paul.
Thanks for explaining this
Thanks for explaining this
After doing some more research about the DTC (DeBeers) "Supplier of Choice" program as it relates to rough supply and polished product, I've come to an inescapable conclusion based on Rapaport's comments:
DTC is trying to control retail sales as well as rough sales. We are seeing a shift in DTC's role from rough distribution to controlling the market all the way through to the polished product retail sales.
It works like this:
DTC (DeBeers) realizes they no longer have the whole world share of the rough. As competition from places like Brazil and Canada and other parts of the world increases, DTC recognizes the need to be a retail player, not just a rough wholesaler.
DTC is saying to their sightholders, "Hey, we aren't going to give you rough unless we see you controlling the polished distribution and turning a profit for us."
The sightholders are in turn saying, "OK, we'll stop selling rough to smaller cutters so we can control the distribution chain."
End result: DTC (DeBeers) controls the retailers who are selling their rough.
Sounds to me like a lot of small cutters and retailers are going to get squeezed out.
Comments?
DTC is trying to control retail sales as well as rough sales. We are seeing a shift in DTC's role from rough distribution to controlling the market all the way through to the polished product retail sales.
It works like this:
DTC (DeBeers) realizes they no longer have the whole world share of the rough. As competition from places like Brazil and Canada and other parts of the world increases, DTC recognizes the need to be a retail player, not just a rough wholesaler.
DTC is saying to their sightholders, "Hey, we aren't going to give you rough unless we see you controlling the polished distribution and turning a profit for us."
The sightholders are in turn saying, "OK, we'll stop selling rough to smaller cutters so we can control the distribution chain."
End result: DTC (DeBeers) controls the retailers who are selling their rough.
Sounds to me like a lot of small cutters and retailers are going to get squeezed out.
Comments?
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If your small town has seen the "success" of a Walmart opening nearby, you will grasp how squeezed some of the smaller players may become with this approach. What happens to small stores when Walmart comes to town. Retirement sales.
Change always happens and not everyone is always happy about it.
Change always happens and not everyone is always happy about it.
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Fortunately, diamonds are not a unidimensional product. In order to understand its market, you should try to think outside of the box.
What is happening now, is that easy-to-sell-polished goes into sightholder-controlled or sightholder-maintained retail projects, and its rough is difficult to find for smaller-size cutters and on wholesale-markets. This is because it is important for sightholders to score in the eyes of DTC now, at this very moment, since this month, the remaining and new sightholders are chosen based upon their success in marketing downstream.
Now, you should try to understand which polished is easy-to-sell and why. Examples are oversizes, like 5/4 (1.25-1.49), and colour-clarity-combinations like H-SI1 (up-facing white and definitely eye-clean). With an over-demand for these easy-to-sell goods, this will also create an over-demand for this rough, and you can be sure that the rough suppliers (including DTC) will raise their prices for this rough.
Now, there are two long-term possibilities.
One, DTC encourages its sightholders to invest more in marketing, to invest in more services to their big retail customers, and to take more of the investment cost of supplying diamonds downstream (longer time before the final sale, and higher interest-expenses). In short, this costs the sightholder more, but he will benefit by a higher profit margin. If DTC supports this scenario, it will leave its prices of rough such that the sightholder can maintain its extra investments by receiving a higher margin. In that case, the room in the market remains for smaller cutters, and the present period is just a temporary problem caused mainly by the selection of sightholders at this very moment.
Two, the other scenario. DTC does not have an unlimited supply of rough diamonds to sell, so it is in their best interest to maximize their salesprice to sightholders. So, there is a possibility, that after a number of sightholders has been successful in creating a downstream-activity which brings them a higher margin, that DTC takes away the cream of that extra margin by raising their prices of rough. In that case, sightholders will end up in a situation in which they invest and risk more in order to receive the same profit-margin. Also, in that case, there is still room for smaller cutters, but in a different way. With sightholders getting smaller margins for more work and risk, they will be pushed into the mainstream of the market. Investing in specialties is way too costly, difficult and complicated then for the big sightholders, so this will become the playground for smaller cutters.
It will be very interesting to see which of these two predictions will come true.
Live long, and see for yourself,
Paul
What is happening now, is that easy-to-sell-polished goes into sightholder-controlled or sightholder-maintained retail projects, and its rough is difficult to find for smaller-size cutters and on wholesale-markets. This is because it is important for sightholders to score in the eyes of DTC now, at this very moment, since this month, the remaining and new sightholders are chosen based upon their success in marketing downstream.
Now, you should try to understand which polished is easy-to-sell and why. Examples are oversizes, like 5/4 (1.25-1.49), and colour-clarity-combinations like H-SI1 (up-facing white and definitely eye-clean). With an over-demand for these easy-to-sell goods, this will also create an over-demand for this rough, and you can be sure that the rough suppliers (including DTC) will raise their prices for this rough.
Now, there are two long-term possibilities.
One, DTC encourages its sightholders to invest more in marketing, to invest in more services to their big retail customers, and to take more of the investment cost of supplying diamonds downstream (longer time before the final sale, and higher interest-expenses). In short, this costs the sightholder more, but he will benefit by a higher profit margin. If DTC supports this scenario, it will leave its prices of rough such that the sightholder can maintain its extra investments by receiving a higher margin. In that case, the room in the market remains for smaller cutters, and the present period is just a temporary problem caused mainly by the selection of sightholders at this very moment.
Two, the other scenario. DTC does not have an unlimited supply of rough diamonds to sell, so it is in their best interest to maximize their salesprice to sightholders. So, there is a possibility, that after a number of sightholders has been successful in creating a downstream-activity which brings them a higher margin, that DTC takes away the cream of that extra margin by raising their prices of rough. In that case, sightholders will end up in a situation in which they invest and risk more in order to receive the same profit-margin. Also, in that case, there is still room for smaller cutters, but in a different way. With sightholders getting smaller margins for more work and risk, they will be pushed into the mainstream of the market. Investing in specialties is way too costly, difficult and complicated then for the big sightholders, so this will become the playground for smaller cutters.
It will be very interesting to see which of these two predictions will come true.
Live long, and see for yourself,
Paul
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