Demonetization Policy in India. Update ! Sylvain Goldberg

Is this a consequence of the demonetization policy in India? De Beers Sells Twice as Many Diamonds as It Mines to Clear Stock.

De Beers sold almost twice the diamonds it mined in the first quarter as the top producer cleared stocks that piled up after India torpedoed demand in the local gem industry by abolishing large-denomination banknotes, through it’s so-called demonetization policy.

The Anglo American Plc unit sold 14.1 million carats, the most since at least the start of 2016, when it first published data, and mined 7.4 million carats, it said in a statement Monday.

De Beers, which doesn’t disclose inventories, built up stocks late last year. That followed India’s shock decision to abolish 500 rupee ($7.30) and 1,000 rupee banknotes, saying it was seeking to tackle corruption. The policy hit cheaper gems in particular as local polishers and traders often rely on cash transactions. As much as 90 percent of the world’s rough diamonds pass through India to be cut, polished or traded.

Offloading stocks as a consequence of demonetization policy

De Beers reacted to the Indian demonetization policy by allowing clients to refuse more of the company’s cheaper stones at its sales than typically allowed under complex offering arrangements. It also let them turn down lower-quality gems from mixed assortments.

This year, the producer has begun offloading some of the stocks it built up as a result. De Beers sold $1.86 billion in its first three sales of the year, including a $720 million offering in January, its biggest in at least a year. Alrosa PJSC, the second-biggest diamond miner, has also been selling more diamonds, with first-quarter sales up 17 percent to 12.1 million carats.

The first quarter figures for De Beers imply it reduced stocks by 6.7 million carats, or 43 percent more than for the whole of last year, and it’s unclear that it can continue at the same rate, according to Barclays Plc.

“With similarly strong sales at Alrosa in the first quarter, we do worry about the sustainability of the current market environment,” it said in a note.

De Beers has cut the amount of gems it plans to sell to some clients by about a fifth, said people familiar with the matter, who declined to be identified as the information is private. Not all buyers are affected, the people said.

When we mentioned the demonetization policy in India for the first time a few months ago, we wrote “Only time will tell if the demonetization program will leave an indelible mark on the rough market.” We see some of it’s consequences now.