De Beers Sales Slump 25% in May

RAPAPORT... De Beers' sales fell to their lowest level in more than ayear and a half, as a slowdown in the Indian manufacturing sector hit roughdemand. Revenue dropped 25% to $415 million for the fourth salescycle of the year, which included last week's May sight in Botswana, thecompany reported Tuesday. Proceeds haven't been that low since October 2017, when De Beers garnered just $376 million amid weak midstream profitability. Thismonth's sales were 29% below the $581 million the miner recorded in April. Customers rejected a significant percentage of the goods onoffer, as high rough prices have made polished production unprofitable, sourcestold Rapaport News. Many clients wanted to buy less, but still madepurchases to keep credit lines with the banks and ensure they meet De Beers'demand quota, even after the miner reduced that threshold. Each customer must spend at least $8 million in the current intention-to-offer (ITO) period to be in the running for sightholder status in the next ITOcontract, which begins January 2020, a De Beers spokesperson confirmed. Theminer has lowered the minimum from $15 million, because its 2019 rough-diamondproduction will be less than last year, and since the current ITO is threesights shorter than usual as the company shifts to a calendar-year cycle. Prices still high With lower supply, the miner maintained its prices in May, whichexerted greater pressure on midstream profits, sightholders cautioned. Liquiditychallenges have forced cutting firms to reduce polished production, as bankshave tightened lending and are demanding more collateral, a broker explained. Dealers'average premiums - the margins they can make when they trade De Beers' rough onthe secondary market - have fallen to around zero, they added. "It could be that up to 20% or 25% of goods have beenrefused," a sightholder estimated. "If I look at what we refused, we're talkingboxes where the market value is 10% away from their list prices," he added toemphasize his view that De Beers' rough was overpriced. De Beers feels many clients don't want rough prices to fallbecause that would force polished prices down, the sightholder explained.However, sources said many sightholders were upset at the steady pricing,having hoped for a change of policy in the current ITO period, which began withlast week's sight. Mass refusals"It did upset people a little, as some had hoped for a cleansheet of paper for the new ITO period," a broker said. "They were hoping roughprices would go down to give people a bit of oxygen. If everyone were to leavetheir boxes on the table, they would know they have to change something." Sightholders are still concerned about losing their supplynext year, and fear banks will reduce their credits lines even further if theyfail to show they've bought rough, sight participants noted. "[Sightholders]need to leave all the goods on the table at Alrosa and [De Beers], but theycan't," a rough broker emphasized. De Beers' rough-diamond revenues are down 14% to $1.99billion for the first four sales cycles, according to company reports andRapaport records. That reflects weak demand at the start of the year due to thechallenges in India and disappointing US holiday sales, which led to lowerrestocking than usual. Alrosa's rough sales slid 37% to $988 million for thefirst quarter, with the Russian miner citing the weak festive season as a keydriver. "Cycle four saw lower rough-diamond sales against a backdropof macroeconomic uncertainty, and as we enter a seasonally slower period forthe industry, with Indian factories closing temporarily for the traditionalholiday period," De Beers CEO Bruce Cleaver explained. Image: Steve Millan, a sorter at De Beers' DTC Botswana operation, measures the size of a rough diamond with a micrometer. (De Beers)