DBI ushers in new quota system

DB Investments (DBI), formerly De Beers has introduced a quota system in an attempt to reduce global diamond supply amid an economic downturn, the Financial Express in India reported.

The quotas were being applied to its own mines, which are predominately in Southern Africa, and from others supplying it with gems such as Russian and Canadian producers, the publication reported. “The quotas will be retroactively applied from January 1, 2001 but the the exact figure or impact will only be known at the end of this year,” De Beers spokeswoman Tracey Peterson said. “Each operation will then decide how to best apply the quota, which may be reviewed according to developments in the market,” Ms Peterson said.

DBI Managing Director, Gary Ralfe told a results presentation that the quotas would be “modest” and “nothing like ten per cent” of current supplym the publication reported.

Mr Ralfe said that a marked slowdown in economic conditions meant the firm would be unable to meet its original sales target of $4.8 billion worth of diamonds in 2001 though it was still on course to sell over $4 billion this year.

Sales in the first six months of the year by DBI’s Diamond Trading Company totaled $2.619 billion, down 25.5% from last year because of a slowdown in the US retail market which accounts for more than half of all jewelry sales, the publication reported.

De Beers had wanted to usher in its “supplier of choice” initiative this year, which would have done away with its decades-old policy of restricting supplies to the market by building up stockpiles in an attempt to support diamond prices.

The economic downturn, combined with objections by the European Commission to the policy, has delayed the supplier-of-choice initiative.

De Beers said that sales of rough diamonds through its diamond trading company slumped 25.5% in the first half of 2001 to 2.62 billion dollars, the publication reported.

The Group blamed the slowdown in the global economy for sluggish demand for polished diamonds, particularly in the US, which had a knock-on impact on rough diamond demand.

“The first six months have been difficult for the diamond industry with prices under pressure, liquidity tight and profitability eroded,” the Group said in a statement. “The rough diamond market remains depressed. Any improvement will depend on the pace and extent of a recovery in economic growth, the relative strength of the US dollar against other diamond consumer market currencies and, more immediately, on the level of consumer demand for diamond jewelry over the important Christmas season,” it said.

The slack figures meant that net income at De Beers investments fell 32% to $480 million, while headline earnings fell 15.2% to $744 million.

The latter figure includes De Beers’ share of mining giant Anglo-American’s headline profit for the six months to 31 December 2000. Anglo-American and De Beers are in the process of unraveling cross holdings in a private buy-out of De Beers that will leave Anglo with a 45% stake in the diamond company.