De Beers says diamonds running low
De Beers says diamonds running low
Posted May 04, 2010 |
De Beers will reportedly scale back its diamond production – a move that could push prices up – due to fears the world’s diamond supply is running low.
De Beers has made the decision to reduce production in an attempt to extend the life of its mines, according to a report in The Financial Times.
The prediction by De Beers is based on two factors: rising Asian demand has accelerated the depletion of the world’s diamond mines; and more diamond mines are reaching the end of their production life than new diamond discoveries and mines are coming on line.
De Beers will cut production to 40 million carats per year from 2011. In 2008 the company produced 48 million carats.
In the news report, De Beers managing director Gareth Penny posed the question: “Do we want to ramp production back up to 48 million carats, given the lack of availability in the future?
“Diamonds are a treasure of nature that should be properly protected, because there will be less to sell. The reality is that supply cannot keep up, and that will become very accentuated over the next 15 years,” he said.
De Beers accounts for 40 per cent of global rough diamond sales.
The company recorded a net loss for 2009, although it stands to gain over the next five years from what Penny called “a natural supply-demand imbalance”.
Australian diamond expert Garry Holloway, director of Holloway Diamonds, said of the decision: “It’s likely to accelerate the rise in the price of diamonds.”
According to Holloway, the move by De Beers is simply a clever marketing strategy designed to ensure it achieves higher prices for its diamonds.
“When there’s a downturn in the market, De Beers has traditionally withheld diamonds from the market until the price goes up,” he said.
Despite the price rise, he said the move was a good sign, signalling De Beers expected the diamond market to strengthen in the near future.
“This is a ‘good times’ strategy,” Holloway said.
“De Beers is saying that demand from America and Asia will be stronger in three years than it is now.
“So if demand is going to go up, why not keep your diamonds in the ground and bring them up when demand is peaking?
“It makes sense,” he said.
Reports suggest De Beers plans to become a publicly listed company next year, and that the recent decision might be designed to make the company a more attractive investment.
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