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What are the Reasons Behind De Beers' Diamond Prices Increases?

May 2005

Today, prices are very strong, particularly on rounds and princess cuts, and particularly on larger stones, one carat and up. But demand is still not great, meaning that the price increases are still driven by supply (meaning scarce rough), rather than demand. And we are seeing considerable speculation, with many dealers keeping the better goods in their safes.

So why do prices keep going up? A possible reason was suggested recently by Business Day in South Africa. It says De Beers’ new contract with Botswana calls for the company’s profits to be dramatically slashed, by as much as 50%.

This comes from a combination of the decrease in De Beers’ ownership of Debswana, the joint De Beers-Botswana partnership, to 20% from 25%, and plans for a new “DTC Botswana,” that will make less goods go through the DTC in London.

All this could be behind the new plans to both increase prices (De Beers already says it plans for several price increases over the next year; see next page) and to hit sightholders with a fee for “value added services.” In many ways, this is similar to what banks do; when they can’t make money from high interest rates, they recoup it on fees.

This is a dramatic demonstration of how the balance of power is shifting in the industry. The producers are making new demands of De Beers; De Beers turns around and makes demands of their sightholders. The ability to supply is now paramount. It’s like the old parody of the “golden rule – “He who has the gold, rules.” Today in the industry, he who has the diamonds, rules.

De Beers’ new annual report stresses “partnership.” But we are seeing that some partners are more equal than others.   


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