This is very important for planning the production of diamonds

Sometimes, when you talk to sightholders, they have a firm, even sharp opinion about their deliveries to sites, prices and market conditions. It happens in times of instability. At other times, their opinion is rather moderate, they are inferior to the demands of the market and everything that happens on it in such periods. But in turbulent times sightholders very rarely remain restrained or reconcile with the situation, which is now observed.

Currently, it is difficult to determine the size of De Beers' websites. All brokers agree that De Beers offered diamonds worth about $ 600 million, and there were still applications for unscheduled deliveries worth $ 50 million. There was no clear trend in prices, although there were many changes - both in the direction of their increase, and in the direction of their decrease.

LOSS OF INTEREST?

Many believe that the assortments were different on this site, many claim that they were worse, although some argue that the boxes were better. In general, the combination of price changes and assortments led to conflicting reports - some said that prices were actually higher, although others said that prices had not actually changed.

Such contradictory opinions about the site can explain such a nonsensical response of sightholders. Maybe it reflects a loss of interest. Sightholders resigned themselves to the fact that there is a new policy of pricing and that the rates of return will be low for a long time.

In response, many in the industry are taking measures to reduce costs, for example, reduce operations or reduce the number of employees. At the same time, it makes more sense to invest in marketing - and not just in advertising, but in ways to reach more potential customers and raise current accounts, or to find new sources of income.

The need to take such measures does not pass by anyone, even the largest, most recognized and well-integrated companies. Probably, it is this that should concern those who are in the middle part of the diamond pipeline. No one has immunity. Quarterly results of public companies are a confirmation of this. If they suffer, they are not at all surprised by reports that small and even medium-sized diamond firms in India quietly close production and leave the diamond industry.

BUY AND PLAY

But most companies can not just liquidate and close. They have such a large share of borrowed funds, that liquidation of the enterprise will not cover their debts to banks. Owners are simply forced to continue moving on. This partly explains why some sightholders will continue to buy goods on the site, even if it is not profitable; This is not a suicidal economy; Rather, it is a survival economy.

Of course, every business wants to be profitable, therefore, when sightholders come to pick up their goods and see prices, they are disturbed when they realize that talking about profitability with this product can be stretched. One broker said in this connection: "They buy and cry - and De Beers wants this to happen." The point is that the prices were the highest - high, but not so much that the goods were left on the counter. If the sightholders are smiling, it means that there is a profit that De Beers did not take away, "and there it does not like it," he added.

Last week, a team from De Beers was in Israel at annual meetings on the analysis of activities. I'm sure they heard a lot of complaints. In the same week, Bluedax, an online brokerage company working with rough diamonds, added a new characteristic to the sales volume report that they sent out: all transactions that were considered a possible loss were marked in red. A couple of sightholders are reported to have printed this report and put it on their desks. They wanted De Beers to see that they were losing money.

PROFITS WERE SMALL

Demand for goods in the secondary market was weak in this cycle, and even fewer boxes moved into other hands. Prices were also low, and figures show that many boxes were sold at a loss of about 1-2 percent.

The combination of low demand, uncertainty about the economic feasibility of products in the production of diamonds and possible losses when selling boxes in the secondary market requires a certain level of profit. The profit is estimated by low double-digit figures, less than 15%, although some estimates were much higher. De Beers "reused" some goods, and in the end, the profit, according to calculations, was expressed by a high single digit.

PARADOXICAL SITUATION WITH ITO

ITO (Intention To Offer - the intention to make an offer) is a schedule of supply of rough diamonds. It used to be that sightholders knew exactly when they would receive their goods. This is very important for planning the production of diamonds and for working with clients. Confidence that you have sustainable supplies, as well as knowing when and how much the goods will be delivered, means that you can engage in long-term planning. This was one of the most important aspects of the fact that you are the buyer with whom the contract is entered into.

It used to be that De Beers' fee for Value Added Services (VAS) - a rate of approximately 1.5% of the value of the product - was paid for various marketing initiatives, seminars and related activities . Currently, VAS is a payment for providing you with ITO - you receive services of a higher class and priority over those who chose not to pay. Last year, De Beers sold diamonds worth $ 6.48 billion. At a rate of 1.5%, VAS formed a significant additional income of over $ 90 million.

Changes in the way ITO works have led to uncertainty in the receipt of goods. For example, on the last site, it is estimated that there was a deficit of about 10% of the expected ITO for the so-called Indian commodity. This somewhat reduced the certainty as to when the product will be delivered, and this has a detrimental effect on the possibility of long-term planning. On the last site, it caused some disappointment, and according to one person, even a huge disappointment.

SEARCH ALTERNATIVES

The loss of certainty with respect to ITO is contrary to the concept of contractual deliveries, although it may be considered that at times like this, the non-receipt of the ITO part causes a certain sense of relief, if not for everyone, then at least for some.

The combination of price, availability and large volumes of supplies makes many diamond manufacturers participate in tenders in search of the goods they need at more reasonable prices. Make an order and win, and you will have the right product at the right price. Or lose, and then you will be without a product, which, in your opinion, does not create the necessary profit.

The irony is that for many years sightholders are afraid that De Beers will cancel the site system and replace it with a tendering system.

PRICE DEPOSIT ON DIAMONDS
 
Someone told me last week that the current deflation of diamond prices is the longest in recent years - probably from the time of the big price drop in the early 1980s. They have been falling since the peak of prices in 2011. According to the price index for diamonds IDEX Online, prices fell by an average of more than 12 percent. Round cut diamonds weighing one carat have lost more than 22% in price since July 2011, according to Mercury Diamonds.

For almost four years, since the peak prices, prices have risen by several points, so it can formally be said that the price decline is not permanent. But if you look at the chart below, you can agree that over the past four years, the price trend shows a decline.

http://edahngolan.com/buying-and-crying-the-longest-diamond-recession/