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EU set to clear De Beers distribution plan

A plan by diamond giant De Beers to overhaul its distribution system is likely to win approval soon from the European Commission, a source familiar with the situation said on Monday.

De Beers says it wants its customers to better market its products and to brand its diamonds. De Beers declined to provide any details but analysts said that will mean cutting back on those who take a bite out of profit without adding value.

A De Beers representative said that the goal of the new system is ”to make the channels of distribution more efficient.” A diamond analyst said flatly: ”They will cut out many of the middlemen.”

A Commission source said the EU executive was expected to approve the De Beers proposal now that the world’s dominant diamond producer had agreed to make changes in its plans.

De Beers once held a monopoly and still controls well over half of the world’s diamond production of roughly $8-billion annually, which translates into about $55-billion of jewellery.

The Commission took a very close look at De Beers’ original plan and found it troubling.

It issued a statement of objections in May and noted publicly that proposed restrictions on De Beers’ customers appeared to violate European competition law.

”De Beers’ control over the world’s production of rough diamonds, together with the strategic use of its stockpile of rough diamonds enables De Beers to determine the quantity, the quality, and to a large extent the price of the rough diamonds that they release onto the market every year,” the Commission said earlier this year.

The two sides bargained in what De Beers, which is 45% owned by Anglo American, called ”a constructive dialogue,” leading to the changes to the plan.

The final document changes the relationship between De Beers and its 120 ”sight holders”, which are the only people it will sell to. De Beers will not say whether the number of sight holders will change after the new plan takes effect.

The customers are called sight holders because they are permitted to purchase ”sight boxes”. They are something like a suitcase or a child’s lunch box, and contain assortments of diamonds, packed in sealed plastic envelopes.

The sight holders visit London every five weeks or so and then take their diamonds home, mostly to one of the four major cutting centers.

New York, with fewer than 1 000 cutters, handles the most valuable stones. Others, in order of the value of the individual diamonds they handle, are Antwerp, Tel Aviv and Bombay.

De Beers will not say who the sight holders are. But De Beers reportedly wants people who will have the skill to cut the diamonds properly, and then add marketing, distribution and branding.

”We have to become more market-oriented,” said a De Beers representative.

At the same time, the Commission is still looking at one other plan affecting De Beers, but there is no indication when it will rule.

Russian diamond producer Alrosa wants to sell a large part of its production to De Beers. It said earlier this year that it expects to have to cut the percentage it wants to sell before winning approval. – Reuters

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