De Beers forced to cut its selling

POOR global market conditions for high-quality diamonds has forced the De Beers controlled Central Selling Organisation to cut back sales in an attempt to stabilise the market.

But the fundamentals for the global diamond industry appear to be improving this year, with sales clawing their way out of the doldrums.

The Central Selling Organisation remains the world’s major diamond retailer despite companies such as Argyle Diamonds leaving it.

South African-based stockbroker BOE Securities Pty Limited analyst Hilton Ashton said CSO sales were down as much as 28 per cent to US$3,345 million last year.

He said this resulted in first half sales dropping a “whopping” 41 per cent, with some recovery in the second half of 1998 when sales only fell by 7 per cent.

This saw De Beers’ earnings drop by 40 per cent as the company struggled to come to terms with low diamond demand on world markets. Last year the global demand for diamonds fell 3 per cent compared to a 5 per cent fall in 1997.

While the Japanese market is still declining, Mr Ashton believes it has bottomed out.

“This we view as being very positive,” Mr Ashton said.

However, the outlook for this year remains positive, with US trade sentiment still strong and Europe continuing to strengthen. The analyst forecast CSO sales to be US$4 billion in 2000.

With diamond industry fundamentals improving this year, BOE changed its recommendation for De Beers from a ‘sell’ to a ‘hold’.

De Beers has sold US$800 million worth of diamonds so far this year, a figure 32 per cent better than last year.

“Based on the state of the diamond market, we believe that De Beers will maintain its final dividend, which could be very bullish for the share,” Mr Ashton said.

The US is becoming an important player in world retail markets, last year accounting for 46 per cent of sales.