U.S. Diamond Demand Jumped, De Beers Says
By Rob Bates, Senior Editor -- JCK-Jewelers Circular Keystone, 10/1/2005
Diamond demand in the United States rose 6 percent in the first half of the year, De Beers says.
“Larger chains and high-end independents have shown the strongest results,” the company said in a statement announcing its financial results. “Polished prices have started to edge up at the consumer level.”
The good news from the United States helped drive the first-half sales of its marketing arm, the Diamond Trading Company, to $3.2 billion, an 8 percent increase over last year’s figures. The DTC raised prices on two occasions.
On the profit side, earnings were down, and Nicky Oppenheimer, chairman, De Beers Group, termed the result “disappointing.” The company’s profits were $345 million, 8 percent lower than a year before, and headline earnings fell 21 percent. The decrease in earnings was blamed on the weak dollar and the fact that the company was no longer selling from its high-margin stockpile.
There was good news on the production side, as production jumped 23 percent over results from the year before. The company said this was responsible for its taking on 11 new sightholders this year.
In a press conference following the results, managing director Gary Ralfe said De Beers had completed the first stage of its transformation and was now on “chapter two.” He noted that newly appointed managing director Gareth Penny has been given ambitious goals to increase demand.
The executives hope that the company’s results will improve in the second half, with sales likely to equal the first half. If that happens, De Beers will set a sales record.
One puzzling number in the financial results concerns De Beers’ stockpile. After years of determinedly selling off the stockpile, it increased by $400 million—although the company declined to specify its current level. This caused analysts to wonder if De Beers was shifting its strategy back to its pre–Supplier of Choice model of hoarding goods when the market was bad. Penny assured them “there was no shift in strategy whatsoever,” and that De Beers only wants “a working stock.” Still, the question remains.
In response to a query, Penny said he was not worried about synthetic diamonds, noting their numbers equal about one-tenth of 1 percent of the number of natural diamonds. “We’ve seen a slower buildup in actual production that might have been originally envisioned,” he said, adding, “People buy diamonds because of their emotional attachment to something that is over a billion years old.”
