By all accounts, the mood at this week’s De Beers sight in Botswana was grim, particularly for January—traditionally an upbeat meeting. De Beers did adjust prices (somewhat) but not enough for some, given the expected coming correction in rough.

Even the vertically integrated sightholders “understand they are losing money on their sights,” one client told me. “Manufacturing is a money-losing proposition, and I don’t care who you are and where you are manufacturing. Being a sightholder is a fool’s errand.” 

De Beers executives privately acknowledge that the pipeline is clogged due to a variety of factors, including better turnaround at grading labs, the decline in liquidity stemming from issues with the banks, and a holiday that came in a little under everyone’s hopes. They feel that retail restocking and the Chinese New Year should give the trade an adrenaline boost to get past the current lag and enjoy what could be a good year. 

But the Chinese economy isn’t doing great either. If the promised boost doesn’t arrive, what then? This lag, even if temporary, fuels a perception—certainly among sightholders—that De Beers’ prices have become unmoored from market fundamentals. That goes along with another perception—fair or not—that the current De Beers leadership and possibly even majority owner Anglo American do not have a long-term commitment to this industry. They want to make as much money as possible and move on.   

Clients reportedly refused about 20 percent of the goods from the sight, about equal to December. But the overwhelming majority of the goods still sold. We are once again seeing the diamantaire’s prisoner’s dilemma. By acting individually, clients lack the leverage to force a change. Everyone complains the current situation can’t go on, but it does, as clients are “are too afraid to push back, out of fear of losing their sight,” one says. De Beers’ current dynamic system, where it grooms clients-in-waiting to pick up refused goods, fuels those fears. 

What may be required is a new mindset. The diamond industry remains an oligarchy. There are dozens of diamond manufacturers and only two high-volume rough producers, along with a handful of other miners. Manufacturers don’t have many other places to go.

But they do have options. “Getting the rough supply itself has never been more accessible,” says Anish Aggarwal, a partner in Antwerp, Belgium–based Gemdax, an industry consultant and De Beers broker.

“In the past, manufacturers looked to source as much as possible from De Beers—they saw this as a key driver for profitability,” Aggarwal says. “A De Beers supply is still valuable, but manufacturers are adopting a portfolio approach to sourcing, buying rough from many places. They don’t want to be dependent on any one supplier.”

Over time, “this will bring greater balance to the supplier-customer relationship, something we’ve not seen in our industry in the past,” he says.

This may mean not thinking in terms of partnerships or relationships or prestige or politics or any of the traditional elements of the diamond mindset. Because De Beers isn’t. In days gone by, DTC execs may have talked about sightholder partners and relationships based on “shared goals.” That was then, this is now. De Beers CEO Philippe Mellier’s recent comments make clear that the company has become solely and unsentimentally focused on maximizing profits. Its clients will have to do the same.

Rob Bates

JCK News Director