De Beers introduces forward contracts of rough diamonds

With the slowing global economy posing a threat to diamond sales, the world’s largest rough-diamond miner De Beers has introduced forward contract sales, allowing customers to book the required quantities and types of the stone for a future month. Indian jewellers, however, fear the new system will lead to an artificial rise in the prices of rough diamonds.

The contracts will complement De Beers’ spot auction events. “The purchase price for the required volume of rough diamonds in a forward contract will be determined by a customer’s bid relative to the spot price for the same type of goods at the spot auction event, when the contract matures,” De Beers said.

The first forward contract was issued in London on Tuesday. Registered customers of De Beers Auction Sales were able to bid for supply up to three months in advance. It is anticipated the contracts to bid for supplies through 12 months will be introduced next year.

“Customers have expressed a desire to secure future supply at auctions so they can plan their activities more effectively and commit to longer-term agreements with their own customers. We see the contracts as the ideal mechanism to deliver this and believe these will be a valuable addition to our customer offering,” said Neil Ventura, senior vice-president, De Beers Auction Sales.

About 10 per cent of De Beers' rough diamonds are sold through its auction platform. “We understand auction forms a small part of the DTC sales window that they use to service SME (small and medium enterprises) clients. The positive effect of this move will be small manufacturers will get an assured supply for a longer period, which will bring stability to their business,” said Vipul Shah, chairman of the Gems & Jewellery Export Promotion Council. “But at the same time, we would like to urge both buyers and seller to use this system prudently so that it doesn’t lead to speculation and overpricing of roughs, which will harm the industry.”

For the first half of this year, De Beers posted a 6.29 per cent rise in rough diamond production. The company's overall rough diamond output rose to 14.295 million carats during this period, compared with 13.449 million carats in the year-ago period.

Sales remained steady during the first half of the current calendar year, with total sales of $3.3 billion  and rough diamond sales of $3 billion.