Wed, Sep 09, 2015 - Page 14 News List

De Beers bows to market forces in bid to spur sales

ROCK BOTTOM:Diamond prices have dropped about 14 percent this year, prompting De Beers to slash prices and spend millions of dollars on new advertising campaigns


De Beers, the one-time world diamond monopoly, is bowing to market forces.

The Anglo American PLC unit, still producing about 30 percent of supply, is said to have lowered prices almost 10 percent last month and is plowing tens of millions of dollars into an advertising push to spur jewelry sales.

That is after two reductions in its annual output target, by a total of as much as 15 percent, failed to halt an accelerating slump in prices of the uncut gems.

“The time is right for us to try and help boost confidence in the industry,” Bruce Cleaver, De Beers’ head of strategy, said from London on Wednesday last week.

Rough diamond prices have tumbled about 14 percent this year and are heading for their fifth straight quarterly loss, the longest streak in at least a decade, figures from UK-based WWW International Diamond Consultants show.

De Beers cut prices on a sale of about US$250 million of the stones by as much as 9 percent last week, according to three people familiar with the matter.

Its advertising campaign to promote diamond jewelry focuses on the US and Chinese consumers who make up more than half the world market.

China represents roughly a fifth of the world’s polished diamond market — less than half of the US in value terms — and accounts for the same proportion of India’s US$23 billion of annual exports.

However, its growth has fueled the diamond industry in recent years, as jewelry stores expanded at breakneck pace to cater for luxury hungry consumers.

At the peak, between 2008 and 2013, diamond jewelry sales in China grew at a compound annual rate of 18 percent. Now, industry executives estimate growth in single digits, and jewelers are adapting — and cutting back.

A stock market crash since June and slowing growth has hurt the wealthy in China. A crackdown on corruption has also meant that the rich are fearful of any ostentatious signs of wealth, and among luxury goods, jewelry has taken a big hit.

“In the last couple of years China was on an explosive growth path,” said Stephen Lussier, chief executive of Forevermark, the diamond brand of the De Beers group. “Now, demand for polished diamonds in China has significantly reduced relative to a year ago.”

In July, De Beers lowered its full-year production goal to 29 million to 31 million carats from an earlier target of 30 million to 32 million carats. At the start of the year, it was planning to mine as much as 34 million carats.

That is a change from when the company shipped 90 percent of the world’s diamonds about a decade ago, tightly controlling supply through its system of sales to hand-picked customers, or sightholders, allowed to polish gems and sell them to jewelers or simply offer the rough stones on for a quick profit.

While the system still operates, De Beers has squeezed sightholders’ margins since chief executive officer Philippe Mellier took the helm in 2011, holding prices at levels that left margins below the 2.5 percent buyers need to break even. It also favors buyers cutting the gems themselves instead of selling on the rough stones to profit from their privileged position as sightholders.

De Beers has since given ground, lowering prices, following reports of threats made by Indian customers in July to halt rough diamond imports.

“It’s a dramatic set of steps,” Anish Aggarwal, a partner at Antwerp-based industry consultants Gemdax, said from Antwerp last week.

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