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Ramat-Gan--The rough market is again in a glut, a result of supply exceeding demand. This is a temporary, short-term issue, but for now, goods are coming in from all directions, and buyers are wondering what to do with them.

The DTC sight last week, the first of 2012, was met with surprise at the lower box prices, as first reported by IDEX Online. This was not a real price change, but a result of lower assortments that reflected De Beers' recent diamond production.

After sorting and studying the goods, sightholders found that the price was hardly changed, though in some areas the price was a percentage point or two lower.

The January sights traditionally tend to be large, and this sight was indeed on the larger side, estimated at $620 million. Sightholders were quick to offer many of the boxes for sale, but found that, with the exception of a few select boxes that fetched premiums of 2-6 percent, demand is very low, and many boxes are still available in the market --without buyers.

There are two concerns here: price and necessity. The price of goods, from a manufacturer's standpoint, is still high. A number of traders stated that sightholders and manufacturers are losing money, mainly because the boxes that are sold are sold for below the original DTC price.

The bottleneck seems to be polished diamonds. While the prices of rough are continuing to recover since their July fall, polished prices are largely steady. In addition, many manufacturers have large and growing stocks of polished. These inventories were created as a result of having rough and manufacturing it rather than because of demand from buyers of polished diamonds--jewelry manufacturers and retailers.

This combination of a slow polished market and continued manufacturing for stock is discouraging rough diamond purchases.

The question that needs to be asked is what will happen now? Alrosa, very much interested in a successful IPO, wants to be able to demonstrate good sales by pumping goods into the market.

Zimbabwe may start influencing prices and demand, too. This week, DMC and Anjin are auctioning goods in Harare. DMC has offered about 400,000 carats, and Anjin is offering another half a million carats. Two other Zimbabwean miners, Mbada and Marange Resources, are offering  another 700,000 carats (possibly more) for a total of some 1.6 million carats.

In the past, the Zimbabwean goods were valued at around $40 per carat. Will bidders play a political game and bid high to make sure they get future supplies? Maybe, but not necessarily. Clearly, the market is not short on rough goods. Anjin, which is sitting on a large stock of rough (estimated at more than 4.5 million carats), knows this and is therefore refraining from offering all of its goods.

The BHP Billiton January auction had mixed results. Some goods went for more than at the previous auction. Among them, the 4-8gr CL/LO White lots that fetched $207.81 p/c, a 10 percent increase compared to the December auction. Other lots such as the 2.5-6 ct FA White, declined, closing at $1,606 p/c, a 5.5 percent decline.

The liquidity issues are still hurting some manufacturers, and that plays a role as well. After the Indian government announced a 2 percent duty on polished diamond imports, round-tripping became a less attractive way to generate financing, which further hurt at least some manufacturers.

With the exception of a few scarce items, rough diamonds are in oversupply, a situation that will continue until consumer demand from the U.S., China, Japan and India starts bringing down the high level of polished stocks, creating a real need for rough. Until then, manufacturers will polish--and buy rough--at a measured pace.

This article was first published on IDEX Online on Feb. 2.