London—In a surprising move, De Beers has slashed rough diamond prices by an average of 10% to 15% during its January sight, catching many customers off guard. The reductions, more substantial than anticipated, ranged from marginal adjustments for smaller, in-demand stones to an estimated 20% to 25% reduction for 2- to 4-carat, lower-clarity rough.
Traditionally, sightholders welcome price decreases, recognizing the potential improvement to their thin profit margins. However, industry insiders are now questioning whether this reduction in rough prices will translate to a decline in polished prices.
The conventional assumption suggests that cheaper raw materials should lead to more affordable end products. However, the diamond market operates on a complex pricing structure. Polished diamonds can be priced based on the current cost of replacing the goods or according to the input cost, with vendors aiming for a predetermined profit based on the rough’s actual cost. This complexity implies that any impact on polished prices may not be immediate but could be seen around March when the new, more affordable rough material enters the polished market.
While most sightholders interviewed by Rapaport News this week don’t anticipate a significant drop in polished prices, the impact on those purchasing polished diamonds may differ. Sightholders argue that De Beers’ decision was merely an adjustment to polished price levels and the pricing of rough at open tenders and auctions.
De Beers had maintained its rough prices at approximately 15% higher than the rest of the market, opting for reduced volume sales since August rather than discounting during the market downturn. The last substantial price decrease occurred in July 2023. Notably, the RapNet Diamond Index (RAPI™) for 1-carat diamonds has seen a 12.5% decline since the start of that month.
De Beers’ price adjustments may not always align with the broader market trends, as seen in recent years. The company has delayed reducing prices until market crises have eased, such as in 2020 following the initial wave of Covid-19 lockdowns. However, facing losses in the second half of the previous year, De Beers appears to be seizing the current market improvement as an opportune time to stimulate sales.
A De Beers spokesperson stated, “In the final quarter of 2023, we saw some stabilization in polished prices, including a number of areas of natural polished now starting to see some price increases. Following this stabilization, we have realigned our rough-diamond trading activities, in terms of prices, volumes, and supply flexibility, to reflect prevailing industry conditions.”
Market participants, cautious after a challenging year, expect total sales at the January sight to range between $300 million and $400 million, relatively low for this time of post-holiday restocking. The recent season in the US reported satisfactory results, but demand in China remains sluggish.
The industry will closely monitor the balance between buyer caution and De Beers’ sales strategy to avoid a repeat of last year’s oversupply that prompted India’s temporary freeze on rough imports. As De Beers also removes the extra concessions that allowed sightholders to refuse goods in the final sights of the previous year without penalties, the market faces increased risks of a flood of goods and potential downward pressure on polished prices.
Despite the price reductions, De Beers diamonds continue to be relatively expensive, potentially supporting polished prices, as sightholders may have limited room for further discounts. Some sightholders expressed reservations, suggesting that the new rates may only enable businesses to break even rather than generate significant profits.
“There’s no hooray if you look at those prices,” remarked one sightholder, highlighting that even with the new rates, businesses may only manage to break even. Another sightholder acknowledged that the reductions may not have gone far enough but speculated that it would be up to the trade to stimulate polished demand rather than expecting further cuts to rough prices.
“As anybody thinks this is a price reduction—no, it’s a halfway correction, and not even achieving the final goal,” asserted the sightholder. “But I also believe they won’t do much [in terms of price cuts] after this. I think their expectation is: ‘Listen, we got you 60% of the way. The other 40%, you guys have to jump up now.'”
