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ROUGH MARKET

The anticipated frenzied buying of rough for January that is showing no signs of subsiding as Rio Tinto reportedly raised prices by around 5%. BHP Billiton is said to have increased prices by about 4% on average, while traders in Moscow said Alrosa raised prices by about 5%. Last week, De Beers announced it had raised prices by an average 3.5%. Cheaper rough in smaller sizes (-13) have reportedly also strengthened. With the secondary market absorbing the price increases, premiums on rough from the producers are set to continue. Volumes at Rio Tinto's Diavik sale were apparently 10 -20% lower. De Beers' agreements with its producer partners is also causing a supply squeeze in the secondary market. This week De Beers forecast a 50% drop in sales from London in top coloured goods as a result of its agreements with the producer countries. With this in mind, traders are expecting the scrambling for rough in the secondary market to continue. Longer term however, there are concerns that rough prices are running too far ahead of polished, which could lead to a correction.







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