De Beers’ executive vice president of global sightholder sales Paul Rowley spoke to me last week following the company’s most recent sight. Much of our interview covered De Beers’ decision to support category-driving advertising this fall; you can read his comments on that here and here. But we also discussed trends in the American market, De Beers’ latest price decreases, and just how the company prices its products.

JCK: There are reports that De Beers has lowered prices at its most recent sight 9–10 percent. Is that true?

Paul Rowley: We won’t give numbers, but we have reduced prices. If you look at the half-year results, we have reported that prices decreased 8 percent. 

Polished prices are under pressure, and there is an overhang of polished coming into the market. Our response has been a significant cut in production and to allow our sightholders more flexibility and to make a greater investment in marketing. We feel that is the proper response. 

JCK: Some felt that the product assortments at the sight were also of lower quality.

Rowley: No. Our production is generally consistent. 

JCK: Some clients were concerned that with the publicity of the price decreases, retailers would also expect 10 percent declines.

Rowley: I think, overall, clients saw good value in the product. We believe we made a suitable response that is in line with the stability that is coming to polished prices.

JCK: What caused the current problems?

Rowley: We are coming off the back of last year, which was a very good year. At the beginning of this year, there was probably too much supply, goods caught up in the GIA, and the growth in China at the first half of last year didn’t translate to a similar growth this year. That created indigestion and a bit of an overhang of polished in the market. 

At the end of the day, there remains good consumer demand. It’s just that consumer demand is not growing at the rate at which we anticipated.

JCK: Where is demand falling off?

Rowley: Mainly in Asia. We are not seeing the growth we anticipated, and that causes a bit of a backward ripple in the pipeline and a fall in demand at the midstream level. We expect that to come back, and we will return to a period of gradual growth and continue on a sustainable trajectory. 

JCK: How about demand in the U.S.?

Rowley: I think the U.S. remains very robust. We will see good growth. We are seeing positive GDP growth. On the consumer level, retail purchases are strong. 

The U.S. still represents 40 percent of global sales. It’s the rest of the world that is mixed. All in all, we expect a similar year [as far as global diamond demand] to last year, which is not a bad space to be in.

JCK: How about the reports of bankruptcies in Israel and India?

Rowley: Bankruptcies are always a concern, but they happen from time to time. These aren’t just happening in our industry. This industry is doing well compared to many. We fear for companies and the banks involved in those bankruptcies.

We would like to see the business more stable and more confident. We should see more stability in polished coming through.

JCK: At a recent presentation for the New York Society of Security Analysts, you talked about how you arrive at rough prices. You said they are derived from polished prices, correct?

Rowley: What I said is we have a host of inputs for our rough to polished modeling. We have an array of polished price providers, and we monitor all of that to give ourselves a sense what is happening in the market.

JCK: If you reverse-engineer rough prices based on polished, doesn’t that contradict the contention by CEO Philippe Mellier that “you worry about your margins, I’ll worry about mine”? Because it seems like you keep tabs on clients’ margins.

Rowley: Obviously, you had that interview with Philippe. People can interpret things in many ways. What he was saying was that everyone has to look at their own business. It’s not that we don’t care about our customers’ margins. They need to have a profitable business. Some will do better than others. That is all he was putting across. 

JCK: Are sightholders finding the assortments profitable?

Rowley: There will always be different opinions. Some have said: Don’t move prices at all. It depends on individual business. No two businesses are the same. Some businesses have excellent efficiencies, while some people say their businesses are going through more difficulties. We try to appropriately price our rough at the time we present it. We felt the time was right to make adjustments.

JCK:  We have heard mostly negative feedback from sightholders throughout the year. What types of businesses do you feel are making money on the assortments?

Rowley: It depends on where people are. It is a very dynamic world. We certainly expect our clients to be profitable. If the rough is suitably manufactured there should be good profitability.

JCK: For the last sight, you gave clients the ability to defer 75 percent of their purchases.

Rowley: Until you see greater stability in the industry, it is really better to make sure people buy what they want to buy. We want to give people more flexibility so they can get in a more stable position. We encourage customers to buy what they need, and they should feel free to refuse what we have offered. If you want to reschedule your deliveries, that process is under way now. That makes sense in this difficult environment.

JCK: Do you think your response has helped the market?

Rowley: We have seen an easing in polished stocks. We have seen retailers coming back to the market. We don’t expect a significant bounce. It will be a slower, more regular improvement. 

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