Industry Analysis: DTC Announces Client List, Price Increases

The De Beers Diamond Trading Company (DTC) announced its new official roster of clients -- 79 "sightholding groups" with an additional 30 affiliates. A number of these firms operate primarily in southern Africa: South Africa and Botswana now have 32 sightholders between them, while Namibia has 11. These operations were established as part of the countries' "beneficiation" policies designed to increase local employment in the industry.

The DTC also noted that rough diamond prices will have increased an average of 8.5% for the year by the April 28 to May 2 sight. The total was a combination of the 3.5% increase set in January, a "price creep" in February and March and an unspecified hike this week.

These percentages are average increases, meaning that high-demand goods have been raised much more; the DTC said the increases were concentrated in better-clarity goods (which are in demand in Asia).

Currently, there is a surge of demand for large, high-quality diamonds, of which the DTC still controls the lion's share. The DTC sold an estimated 42% of the nearly billion worth of rough produced last year. By volume, however, the DTC share has fallen below 30% according to some estimates. Such a large discrepancy between value and volume means its production is skewed well toward the larger, better-quality goods.

At the recent GIA GemFest held during BaselWorld, luxury market experts noted that demand for high-quality diamonds continues to grow among the world's wealthy and in emerging consumer markets such as India and China, while supplies remain static. Nevertheless, there is evidence that much of the demand for large diamonds is coming from dealers. With only two exceptions, dealers were the buyers who paid 0,000 to 5,000 per carat for large D-flawless diamonds at Christie's and Sotheby's recent New York auctions. Because prices have increased so sharply in the past year, some diamond people believe that dealers are stockpiling such goods in anticipation of further price increases. Should the market reverse, however, this would create additional problems for an industry already saddled with high debts and declining cash flow.