JOHANNESBURG (miningweekly.com) – Diamond company De Beers will start piloting fixed-price forward contracts in its auction sales, providing customers the opportunity to guarantee access to future supply with certainty over the price to be paid when the contract reaches maturity.
The first event to feature the fixed-price forward contracts will take place on February 16, for the grainers, smalls and near-gem categories of rough diamonds.
The pilot has been developed in response to customer feedback on the previously used forward contract sales, which offered the guarantee of future supply but with a ‘floating’ price based on the spot price at the point when the forward contract matured.
Fixed-price forward contracts are expected to provide a highly effective supply sourcing option for small and medium-sized enterprises, which are seeking access to regular rough diamond supply at a predictable price.
“Extensive customer dialogue has highlighted potential to further develop the forward market for our rough diamonds. 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.
“We are, therefore, piloting three-month forward contracts on a fixed-price basis to complement our spot sales channel and the term supply contracts offered by global sightholder sales, while further testing stated customer demand for regular, guaranteed short-term supply at a fixed price,” De Beers auction sales executive VP Neil Ventura said.
Since launching forward contract sales on a floating price basis in December 2013, auction sales has steadily developed its forward sales channel, selling more than 350 bespoke supply contracts over the period.
The pilot for fixed-price contracts follows other auction sales pilots, including those enabling third parties to use its auction platform for rough and polished diamond sales.