De Beers Restructures Diamdel; Market Scared

De Beers is restructuring Diamdel, its sightholder subsidiary that traditionally sells to smaller and medium-size dealers. The announcement caused anxiety in the diamond industry, since De Beers had cited Diamdel in response to criticism that its Supplier of Choice policy hurts middlemen.

Diamdel will continue to sell to nonsightholders, principally through its office in Antwerp and Hindustan Diamond Corp. in India, the De Beers announcement said. But all of its operations, with the exception of HDC, will be “scaled back.”

In South Africa, the Diamdel office will cease trading, as De Beers has agreed to provide diamond skills and services to the soon-to-be-established State Diamond Trader. In Namibia, the new Namibia Diamond Trading Co. the sales and marketing business owned jointly by De Beers and the Namibian government, will supply local factories.

The reorganization was seen as another blow to the industries in the traditional centers, particularly Israel and Antwerp, Belgium, as well as to the middle market in general.

The news release announcing the reorganization says De Beers will “take into account [its] stated commitment to support the secondary market.” However, in an e-mail interview, De Beers spokeswoman Lynette Gould noted that while Diamdel achieved sales of $417 million in 2006, “it is likely that this figure will be reduced. [However,] Diamdel will continue to sell hundreds of millions of dollars of diamonds into the secondary markets.”

She also noted that while De Beers will have no input on who State Diamond Trader sells to, “we understand it will seek to target the nonsightholder sector of the market in South Africa.”

The restructuring was widely thought to be a result of Diamdel’s profit shortfall last year, but Gould said, “The restructure was not triggered by short-term issues such as last year’s profitability. We have undertaken this review of Diamdel’s operations in order to equip it for a future that will be sustainable over the long term. Like any other organization, this has involved a careful review of Diamdel’s cost base and customer proposition.”

As for whether Diamdel will continue to buy rough, as it has in the past, Gould said, “That’s for Diamdel’s new management to decide.”