JUNIOR MINING — De Beers plans increase in producer

South Africa-based diamond house De Beers announced recently that it will buy more diamonds from producers because of an improvement in the market. The company controls more than 80% of the global trade in the gems and regulates prices through the operation of the Central Selling Organization (CSO), situated in London.

De Beers had been taking only about 75% of producers’ output capacity since September in an effort to rebalance the market, which had been hit by illegal sales from Angola, and Russian diamonds arriving on the market. But according to its annual report, these factors are no longer significant and the company has re-established its influence on price, which rose 1.5% in February, the first rise since 1990.

The company is thus relaxing the quota system, allowing producers to deliver more of their output to De Beers. Certainly 1992 was a “testing one for De Beers and the whole diamond industry,” wrote Chairman Julian Ogilvie Thompson in the report.

“That we have come through . . .

and stability restored in the market with a small price increase is proof again of the efficacy of De Beers’ system of marketing rough diamonds through a single channel,” he said.

“It is especially in such times that the CSO fulfils its function and proves its worth not only to producers but to all the other sectors of the industry that benefit from its stabilizing role,” he continued.

By buying up excess diamonds on the market and operating a withholding scheme, De Beers controls the price of stones, establishing stability and profitable mining for all producers.

Apart from the company’s own South African and Namibian production, the CSO handles gem diamonds from Angola, Australia, Botswana, Russia, Tanzania and Zaire.

Thompson said that an unexpected continuation of the world recession last year and the deterioration in confidence in Japan, a major market for diamond jewelry, had a crucial effect on demand.

The problems with Russian and Angolan exports, combined with the downturn to destabilize the market, forced De Beers to buy large amounts of diamonds to keep prices level.

Stocks remain high at US$3.8 billion, up from US$3 billion at the end of 1991. Sales are also low, totaling $3.4 billion in 1992, down 13% from the previous year.

“During the second half of the year the CSO, to correct the imbalance between supply and demand in cutting centers, held back those quantities of diamonds in weak demand and made substantial purchases on the open market,” he explained.

“That we have been able to buy some two-thirds of the increased supply from Angola is testimony to our financial strength. By early 1993 it was clear that balance had been restored in the cutting centers and the CSO price increase was readily absorbed by the market.”

The end of the rainy season means that diamonds are not coming out of Angola and the imposition of 20% export duty (now being lifted) by Russian authorities stemmed that source.

Increased demand from India, partly because of the rupee becoming fully convertible, and increased polished exports to the U.S. boosted demand, said the report.

De Beers warns, however, that sales from U.S. strategic stockpiles could depress the market. Originally these stones were classified as industrial but many could be cut into gems.

“Sales from the robust East Asian economies, where demand for diamonds is growing rapidly and the diamond content of jewelry is high” means that additional sales are expected in this region, it said.

In industrial diamonds, De Beers maintained its revenue at only slightly lower levels than last year. It increased its synthetic diamond sales with the introduction of synthesized large single crystals using new technologies. The sales contracts with the Russian federation, including those with the autonomous republic of Sakha (Yakutia), which now markets its entitlement of 20% of production through CSO, have operated satisfactory, said the report. Because of production difficulties, Russian production fell by 25% in 1992 and “could well suffer a further decline this year, and is unlikely to recover for some time,” explained the report.

Trade with the Russian federation is worth US$1 billion annually and payments are made every quarter. The report concludes that “signals from the retail market are mixed, but it is encouraging to see that in difficult times that diamond jewelry sales are persistently strong.”

— From Inter Press Service.