De Beers introduces forward contract in rough diamonds

To help jewellery retailers formulate long-term strategy

De Beers, the world’s largest diamond miner, has introduced for the first time rough diamonds the in forward contract for its ‘Auction Sales’ (previously Diamdel) customers.

While the modalities of are yet to be worked out, the new system of rough diamond purchase is set to give an opportunity to customers to determine the volume of goods they wish to purchase.

“Perhaps, De Beers wants long-term commitment from its customers to prepare a long-term business strategy as global big retailers continued to introduce programmes to improve their jewellery sales,” said Shreyas Doshi, chairman, Shrenuj & Co, a Mumbai-based jewellery exporter and De Beers’ sightholder. “Whatever, the forward contract’s structure may be, the bottom line is that rough diamond sales through future commitment would be beneficial for both De Beers and retailers.”

In the past, Auction Sales was purchasing up to 10 per cent supply of every cycle from De Beers Global Sightholder Sales (formerly DTC) in the form of boxes and creating auction lots for its customer base.

However, Auction Sales was unable to offer consistency and regularity at auctions, which is very important to customers. Under its new supply arrangements, Auction Sales is now able to create auction-specific assortments, based on demand and previous bidding behavioural patterns on a consistent and cyclical basis across all ranges of product.

“The forward contract, perhaps, should be 6-12 months. Today, jewellery retailers change price for customers once in six months. Volatility in raw material price cannot be considered during the contract period. Once the long-term commitment is drawn, both De Beers and jewellery retailers would be able to fix the price for a long term,” Doshi added.

“Offering forward contract sales through our auction platform, and moving the base of our auction sales to Singapore, will further enhance our compelling proposition to a diversified global customer base, support our position as the leading distributor of rough diamonds via online auctions, and deepen our insight into rough diamond demand,” said a De Beers spokesperson in an email response.

Forward contract sales will allow customers to attain regularity and consistency in their purchases from Auction Sales for various ranges of rough diamonds, thereby addressing the issue often raised by customers regarding spot auction purchases.

De Beers post the monopoly in rough diamond sales globally over the last couple of decades. The company’s market share in rough diamond sales has declined to 20-25 per cent now from around 80 per cent three-four decades ago. The company has also undergone an ownership change in the last few years.

This has opened an opportunity for companies like Al Rosa, Russia, to strengthen their position through direct and auction sales of rough diamond in major processing countries such as India and China.

In addition, as part De Beers’ drive to focus on the needs of existing customers while building a long-term offering to emerging market customers in India and East Asia, the company will relocate the purchasing, production and sales base for its auctions to Singapore. The move will take effect from November 2013.

“Offering forward contract sales through our auction platform, and moving the base of our auction sales to Singapore, will further enhance our compelling proposition to a diversified global customer base, support our position as the leading distributor of rough diamonds via online auctions, and deepen our insight into rough diamond demand,” said Philippe Mellier, chief executive of the De Beers Group.