De Beers sees 'challenging' 2008 for diamond sector

De Beers, the world’s top diamond producer, said on Monday that 2008 looks to be a “challenging” year for the industry due to a slowdown in the global economy that could dampen demand for diamonds.

But Gareth Penny, De Beers’s managing director, said rough diamond prices are still rising due to lack of new supply.

“It is going to be a challenging year but we want to grow, we are working for growth,” Penny said at a rough diamond conference in Tel Aviv. “It is well within our capability to deal with the challenges.”

He noted that rough diamond prices have risen an average of 7,5% since the second half of 2007 but market forces would determine how much prices would increase this year. However, Penny said he was bothered by heavy diamond discounting by stores prior to the last holiday season.

While the economy around the world slows, diamonds have stiff competition as gifts from items such as iPods and video game machines, he said, adding that high oil prices and electricity problems in South Africa were also hurting the sector.

De Beers, 45% owned by Anglo American, has a 40% market share.

Penny appealed to rival producers to join forces in the marketing and retailing of diamonds, saying De Beers can no longer be the lone voice of the industry.

In his speech, he called on the industry to make some changes and brought up the notion of stopping the trading of diamonds in dollars due to the United States currency’s weakness.
But he later told Reuters that he was not serious.

“I want to give people some ideas to think about,” he said.

De Beers was continuing to invest heavily in exploring for new mines—about $100-million a year—in Africa to try to boost rough diamond supplies, although it takes years for a mine to be operational. The company has been exploring in Angola, the Democratic Republic of Congo and South Africa.

Penny said De Beers was also seeking to sell unprofitable mines.

“Our strategy is a clear vision of focusing on exploration and profitable mines,” he said. “Our business model is not one of only market share.”

Moti Ganz, chairperson of the Israel Diamond Institute, said there were plenty of rough diamonds in the pipeline.

“There is no shortage of rough. But even more than that, we also have plenty of polished diamonds. Manufacturers have accumulated stock in an unprecedented volume of $14-billion to $17-billion,” he said.

Israel is one of the world’s largest exporters of polished diamonds. Exports rose 7% in 2007 to a record $7,08-billion.—Reuters

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