De Beers to Reduce Diamond Supply 50% on U.S. Slump

By Carli Lourens for Bloomberg

Jan. 21 (Bloomberg) — De Beers, the world’s largest diamond producer, will reduce the amount of rough gems offered to customers by about 50 percent until April after U.S. retail sales slumped over Christmas.

Retail sales in the U.S., the world’s largest diamond market, dropped by as much as 20 percent over Christmas and “underperformed” the company’s expectations, said Varda Shine, head of Johannesburg-based De Beers’s marketing unit. The drop in full-year U.S. sales was in “the high single digits,” Shine said in a speech yesterday, a copy of which was e-mailed today.

Consumers in the U.S., which accounts for about half of global retail sales, are reining in spending as the economy shrinks. ZAO Alrosa, Russia’s diamond monopoly, said last month it expects fourth-quarter sales last year to drop 31 percent below average quarterly levels. Toronto-based BRC DiamondCore Ltd. said last week it will extend a shutdown at its South African operations and start talks with labor unions over job cuts because of “depressed” diamond prices.

Global demand contracted marginally last year and will do so again this year, Shine said. Diamond prices fell about 11 percent in the last six months according to an index compiled by Polished Prices, which tracks prices.

“The diamond market will worsen before improving, simply because the chill of global recession is going to become increasingly evident in the form of accelerating job losses,” Des Kilalea, an analyst at RBC Capital Markets in London, wrote in a report yesterday. “People don’t rush out to buy luxury goods in a recession.”

‘Limited Market’

Generations have seen “world wars, a depression, and too many booms and busts to remember, but none of us have ever seen anything quite like this,” De Beers managing director Gareth Penny told customers at a function late yesterday. “There is no point in producing or trying to sell it when there is a limited market for it.”

De Beers has already started reducing capital expenditure, cutting discretionary spending and reviewing staffing levels across all operations, Penny said. The company’s production cuts will be “significant,” he said.

Market reports estimate De Beers will reduce annual output “well in excess of 30 percent,” RBC said in its report.

De Beers’ sales of rough diamonds, or gems that have yet to be cut or polished, climbed 10 percent to $3.3 billion in the first half. Demand growth in China, India and the Middle East helped counter lower gem sales in the U.S.

Anglo American Plc, which is based in London, owns 45 percent of De Beers with the rest owned by the Oppenheimer family and the government of Botswana.

Original Article on Bloomberg.com.