Diamond polished prices increasing, says De Beers

Brian Benza
Staff Writer | Friday November 19, 2010 00:00

 

Speaking during a press conference here with journalists from Botswana, De Beers Consolidated Mines (DBCM) CEO Phillip Barton said that increased demand coming mainly from India and China has seen the imbalance, which prevailed during the crisis period, starting to normalise.

'We have seen restocking starting to take place again in the pipeline after the crisis two years ago. And now with the increase in the demand, which is mainly driven by the by demand from Asia, polished prices have started to increase and we should see that gap starting to close,' he said.

 Concerns have been raised mainly by polishers about the rate at which producers, including De Beers, were increasing prices of rough diamonds at a rate, which polishers could not transfer to the consumers, further squeezing their margins.

 DBCM is the South African operations of De Beers, with other subsidiaries in Botswana, Namibia and Canada. De Beers prices have increased by 25 percent and are now at 'pre- Lehman Brothers' levels, which polished prices have not increased by equal margins.

While Barton reckons that the imbalance in the pipeline is fast fading away, the Diamond Trading Company (DTC) last week again raised prices by an average of about 3 percent, which analysts say were again met with concern by cutters in the manufacturing centres.

'While polishers' efforts to raise the bar on prices are now expected to intensify, there remains every indication that these attempts will be met by equally strong opposition from their customers. The result is that manufacturing margins will continue to be squeezed due to the rising operating costs.

'There are a number of factors fuelling the demand for rough diamonds at the moment. Sightholders are complaining about a shortage of goods on the market, as De Beers production remains relatively modest,' says a market commentary from Diamonds.net.  Commenting on the current trend, DBCM communications manager Tom Tweedy told the journalists that despite suggestions that De Beers was deliberately suppressing production in a bid to push prices up, the supply-demand fundamentals in the market remain standing.

'The truth is that the supply and demand gap in the industry which was proved as far back as the 1920s is factual. This is why there is still a strong appetite by us and other producers to find new deposits and continue production.

After the crisis we have seen juniors coming back to the market and raise funds while exploration is picking up' he said.De Beers is spending about US$60 million a year to look for mines in Africa and Canada.

The company estimate that diamond demand will rise 20 percent annually in India and China with half of global growth coming from the two nations in the next few years.

India and China together may rival the U.S. as the world's biggest gem buyers in the next decade, according to De Beers, which produces about 40 percent of the world's diamonds.

De Beers' production rose 15 percent year-on -year to 9.033 million carats in the third quarter of 2010, as production was higher due to improved recoveries in Botswana and South Africa, which were partly offset by lower recoveries from Namibia and Canada.

The company estimates that production will rise to about 33 million carats for the full year, of which 7.3 million will come from DBCM.

Global industry output peaked at about 160 million carats in 2007 and may decline to about 120 million carats in the next 10 years or so as no new material production is expected to come online in the near future.