De Beers Starts Outlining Plans to Help Its Struggling Buyers

(Bloomberg) -- After watching diamond sales plunge in 2019 as a crisis engulfed the industry, De Beers is taking action to help its struggling buyers.

The middlemen who cut, polish and trade the world’s gems were at the center of a disastrous year for the diamond industry last year, after a glut of both rough and polished stones destroyed profit margins and banks tightened financing. De Beers sells its diamonds to a handpicked group of roughly 80 buyers and many have grown frustrated as the industry soured.

In meetings in Botswana this week, De Beers outlined plans to assign its customers into three categories -- dealers, manufacturers and integrated retailers, according to people familiar with the matter. The move will help the diamond miner ensure that each buyer gets the stones most suited to its needs and business type, said the people, who asked not to be identified as the talks were private.

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De Beers sells its gems through 10 sales each year in Botswana’s capital of Gaborone, and the buyers have to accept the price and the quantities they’re offered. The group, which ranges from Indian and Israeli family businesses to units of jewelers like Tiffany & Co., have struggled to make a profit lately as tumbling polished prices eroded their profit margins.

De Beers also allocates diamonds based on how many a customer has bought in the past, and some have been known to purchase stones just to secure future supply, then dump them into the market.

That will change under the new measures, the people said. De Beers will aim to channel specific types and volumes of diamonds to the customers best positioned to make a profit from them.

De Beers’s current six-year contract with buyers -- who are known as “sightholders” -- expires at the end of 2020. Existing customers will be invited to apply for accreditation under one of the three new categories, depending on their expertise. The company has also signaled it could significantly reduce the number of sightholders, people familiar with the matter said in January.

De Beers has also offered its buyers unusual flexibility at the Botswana sales in recent months. This week, the company allowed customers to refuse to buy diamonds that are particularly popular with consumers in China and Hong Kong as the coronavirus crisis hits demand, people familiar with the matter said.

©2020 Bloomberg L.P.

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