De Beers to start forward contracts on fixed price

The De Beers group of companies, foremost purveyors of rough diamonds to the world, has decided to start forward contracts on a fixed price basis for its auction sales business.

These will allow auction sales customers a guarantee on access to future supply, with certainty over the price to be paid when the contract reaches maturity. De Beers would conduct its first such contract on February 16, for grainers, smalls and near-gem categories of rough diamonds ('roughs' in trade parlance). 

Since launching forward contract sales on a floating price basis, back in December 2013, auction sales have developed a forward sales channel, with about 350 bespoke supply contracts since then.

"Extensive customer dialogue has highlighted a potential to further develop the forward market for our roughs. Our customers have told us they see value in securing short-term supply contracts but would prefer to do so on a fixed price basis, avoiding potential challenges when securing contracts on a floating price basis that references the underlying spot price at contract maturity," said Neil Ventura, executive vice-president of its auction sales.

"Fixed price auction contracts would help develop business decisions for the long-term," said a senior industry official.

The offer has been developed in response to customer feedback on previous forward contract sales, which offered the guarantee of future supply but with a 'floating' price, based on the spot price at the point the forward contract matured. Fixed price forward contracts are expected to provide an effective supply sourcing option for small and medium size enterprises, seeking access to regular supply at a predictable price.

"We are, therefore, piloting (experimenting with) three-month forward contracts on a fixed price basis to complement our spot sales channel and the term supply contracts offered by global sight holder sales, while further testing the stated customer demand for regular, guaranteed short-term supply at a fixed price," Ventura said.