De Beers Sees Potential to Increase Diamond Prices This Year

De Beers, the world’s biggest diamond producer, said there’s scope for gem prices to increase this year after an industry credit crunch led to a decline in the final quarter of last year.

“We would certainly hope that as liquidity comes back into the system, and as polished starts to move a bit, there will be scope for some price increases in the year,” Bruce Cleaver, head of strategy at London-based De Beers, said in an interview on Friday. “We hope that as the fundamentals improve we would react accordingly.”

Rough diamond prices fell 6.9 percent in the last three months of 2014, the biggest quarterly decline in more than two years, as banks tightened credit to the industry, forcing traders, cutters and polishers to sell more inventory. De Beers said holiday sales in the U.S., the largest diamond consumer, were slightly softer than expected, while protests in Hong Kong that hampered Chinese shoppers also impacted prices.

The diamond industry has been hit by a lending drought after KBC Groep NV said it was winding down its Antwerp Diamond Bank unit, a source of finance for 80 years to the network of companies that trade, cut and polish diamonds in the Belgian port city. Other lenders, including ABN Amro Bank NV, have cut the proportion of gem purchases they were willing to finance amid fears that prices had risen too fast after climbing about 30 percent in the past five years.

Demand Outlook

De Beers, a unit of Anglo American Plc, expects global diamond demand to increase 3 percent to 4 percent this year, Cleaver said. Growth in 2014 growth was likely to have been at the lower end of the company’s 4 percent to 5 percent forecast, he said.

De Beers sells diamonds at prices it sets at invitation-only “sights” at its offices in Botswana. The company lowered prices slightly at its first sale of the year last month, Cleaver said.

“The fundamentals for this year are still good,” he said. “Our main markets, the U.S., China, India, are still in a robust position.”

Even after the decline in prices, De Beers was one of Anglo’s best performing units this year contributing 28 percent of earnings. The company reported operating profit of $1.4 billion and produced 32.6 million carats.

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