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Is De Beers Repealing the Laws Of Supply and Demand? March 2000

The recent announcement of the De Beers price "adjustment" is, as you can see, not easy to figure out. It does not contain a single number — up or down. It leaves everything to interpretation. De Beers has even hinted that in this "adjustment," the price of certain stones is going down.

We tried to clarify by calling Andrew Lamont, De Beers spokesman, in London. He stated that Indian full cuts will be the major target of the increase — while melees and larger goods (especially in the better goods) are not affected.

What is De Beers up to? The February sight is estimated to be nearly $800 million — which would be an-all-time record, and double the size of most allocations. Furthermore, managing director Gary Ralfe has said that De Beers wants to sell half its inventory over time. All this indicates that they intend to increase supplies to the market. In other words, De Beers want to increase prices AND supplies at the same time. The laws of economics say that if you increase supplies, prices go down. De Beers apparently wants to have its cake and eat it too.

It seems like an impossible balancing act, but De Beers may be able to do it by taking things slowly. The current increase is only "marginally positive" (in single digits), and the stock-pile sell-off will take place over several years, Lamont said. It just shows the position of strength De Beers is in — and the strength of the current market. Even OPEC can’t increase sales and prices at the same time. If De Beers can pull it off, they deserve the Nobel Prize in Economics.v


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