Weak diamond market forcing business model changes

Diamond Market
[Image Courtesy: The New Economy]

The slump in diamond market globally since some time now has affected players across the value chain of the industry, also called as ‘diamond pipeline’. Global economic uncertainty, questionable geopolitical stability and Coronavirus outbreak has taken its toll and aggravated the situation. This is forcing the industry to change its business model.

 

De Beers to ease term for Sightholders

In 2015, when De Beers’ sight resulted in 30-40% refusal of allocated goods across entire box ranges, primarily driven by flat prices in a sluggish economic scenario and weaker diamond assortments in many Sight boxes according to Sightholders, it forced the company to change its sales contract terms. While only 10% of its rough diamonds were sold through ‘Auction Sales’ and 90% reserved for its Sightholders, for 2015-2018 Global Sightholder Sales (GSS), De Beers also allowed its ‘accredited buyers’ – companies that qualify as Sightholders but don’t have the status due to non-qualification for a long-term contract, to participate in its future sights, where partial offerings were also allowed to the accredited buyers.

Owing to a 2019 recessionary market, De Beers is forced again to update its terms with its around 80 Sightholders, who will be divided into dealers, manufacturers and integrated retailers. This would allow the individual Sightholders to get diamonds better suited for their needs. As the 6-year contract with Sightholders expires at the end of the year, De Beers’ has been forced to respond to polished diamond prices slump.

In November 2019, De Beers’ sightholder Dilip Mehta of Rosy Blue became the early mover to officially venture into Lab-grown Diamonds, and according to an article, many Sightholders are already trading or considering Lab Grown Diamonds.

 

India’s jewelry exporters asking diamond miners to directly supply roughs to SMEs

Irregular supplies of quality diamonds are hurting domestic sales and exports, which declined by 4.78 % between April 2019 and January 2020 compared to same period last year, for Indian diamond processing industry, especially the Small and Medium Enterprises (SMEs), who do not have large pockets to become Sightholders.

Hence diamond processors are in talks with global diamond miners including De Beers and Alrosa to accommodate such SMEs in their Sightholder list under a separate classification and deal with them in small quantities of diamond roughs. While such SMEs can join hands to participate in online auctions, the quality of diamonds changes in next bid hampering an assured supply of quality diamonds. Around 85% of Indian diamond processors are SMEs.

 

Diamond market decline forces Firestone to plan for LSE Delisting

Firestone Diamonds, which operates Liqhobong mine in Lesotho, has been forced to plan for delisting from London Stock Exchange (LSE), following decline in diamond market and curtailed production due to electricity outages at its site. This also resulted in the company lowering its 2020 guidance by around 100,000 carats, from 820,000 – 870,000 carats to now 720,000 – 750,000 carats. Between October and December, production fell by more than 30% and sales plummeted by 21% QoQ. Since the news of LSE delisting plans and reduction of board size, shares of Firestone Diamonds tumbled more than 69%.

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