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De Beers is continuing its policy of offering almost unprecedented flexibility to diamond buyers as the mining company works to fend off a slump in demand for the gems, according to people familiar with the situation.
The Anglo American [JSE:AGL] unit extended the policy from its August sale to customers this week in Botswana, according to the people, who asked not to be identified as the matter is private. De Beers is allowing buyers to refuse half the stones in each parcel offered and also to sell back some diamonds to the company on favorable terms, the people said.
A spokesperson for De Beers declined to comment.
De Beers sells its gems through 10 sales each year in Botswana’s capital, Gaborone, and the buyers - known as sightholders - generally have to accept the price and the quantities offered. The sightholders are given a black and yellow box containing plastic bags filled with stones, with the number of boxes and quality of diamonds depending on what the buyer and De Beers agreed to in an annual allocation.
This year, buyers have grown increasingly frustrated with the cost of rough diamonds sold by De Beers as the prices of polished gems slumped. That’s led to wafer thin margins for their buyers and in some cases losses from the stones bought from De Beers and Russian rival Alrosa PJSC.
The industry’s problems are centred around an oversupply of polished diamonds that have led to much steeper price drops than for rough stones. At the same time, tighter bank financing and currency fluctuations have hurt traders, cutters and polishers.
De Beers has responded by letting sightholders lower their annual quotas and defer purchases. Chief Executive Officer Bruce Cleaver said in July that he accepts it’s not an easy time for clients, but the company sees no structural problems in the industry.
As a result of De Beers’s concessions and weak demand, sales have tumbled. It sold just sold $280m of diamonds at its August sale, 44% less than a year earlier. Its sales so far this year are about $1bn lower than a year ago.
In this week’s sale, De Beers let so-called buybacks increase to 20%, or in some cases 30%, the people said, meaning sightholders can remove diamonds in a box and De Beers will lower the price by a similar amount. The measure could allow buyers to increase profits since the rejected stones tend to offer the slimmest margins.
