Saturday, December 9, 2023

Diamond Beneficiation in Botswana will succeed’ – Penny

The first-ever diamond town hall meeting was received very positively the market. Traders said the event, in which De Beers Managing Director, Gareth Penny, gave a short 20-minuted presentation, followed by almost two-hours of answering questions from the 475 diamond traders and manufacturers in the audience, created a good sense of confidence; not only in the future of the industry but also in the role of leading rough diamond supplier.

At the Antwerp Town Hall Meeting, held just last week in the heart of the diamond district, diamantaires heard why De Beers feels confident about the industry’s prospects, answered questions about possible price hikes and made statements on how it feels about such potential price increases.

With industry worldwide banking debts having come down some 22% from $13.8 billion in December 2008 to $10.8 billion in March, and after rough and polished destocking of some 30%, Penny clearly sees recovery ahead.

Answering a question from the Town Hall meeting moderator, Chaim Even-Zohar, Penny was unwilling to disclose if the company would raise prices at its upcoming Sight, but left sufficient hints for the audience to draw its own conclusions.,

“We expect rough [prices] to be more in line with polished,” Penny said. “We are looking at it, continue to monitor the situation,” adding that, essentially, this is an issue of stocks and liquidity.
Polished diamonds have maintained their prices in the past five weeks.

Penny stressed the need to “align rough prices”.
Even-Zohar explained to the audience that “alignment” means that the prices of rough, for which there is no or little demand, will be reduced, while articles for which demand is high would carry higher price-tags. Thus the effect on the London price book may be neutral, while in effect DTC Sightholders may pay more for the good for which they applied.”

Though Penny did not confirm it, the market is convinced that next week’s DTC sight will see higher prices. Penny said one must not forget that rough prices may have tumbled some 30%-50% since the onset of the crisis and, in some cases, even more, thus a strengthening of prices still means that the level of prices is well below what it was before.

Signs of Recovery

The De Beers Managing Director told the Antwerp audience that he sees signs of recovery.

“The demand for De Beers rough diamonds is picking up,” said Penny. Apparently, applications for the next DTC sight were well above $700 million.

Furthermore, in a clear reference to Botswana, “the De Beers production is increasing to keep pace with demand. Retail sales have also shown an improvement,” he said.

Penny presented the audience with a historical DTC rough price trend chart showing that after each of the last four major recessions in the United States in the 1970-2009 period, rough prices have steeply risen in the five years following the recession. With the future of rough prices thus quite certain, the question raised by the audience centered on timing ÔÇô whether industry destocking had reached the level to require now significantly new replenishment at higher prices.

The discussion about rough prices, especially against the backdrop of rising demand for rough diamonds and greater financial liquidity, prompted a number of bold statements. Kaushik Mehta, chairman and CEO of DTC Sightholder Eurostar, a major manufacturer in Botswana, warned that rising prices now might lead to “booms day in the rough market and a dooms day in the polished”.

World Production Has Peaked

Replying to a question on the supply and demand equilibrium, Penny made it clear “that the world production, in terms of carats, peaked in 2005-2006, and that it will fall steeply in the 2009-2010 period, only to rise slightly in 2015 whereafter it will basically follow a downward trend until 2020. “The long term fundamentals look good,” said Penny, hinting that demand is bound to exceed supplies in the mid to long-term future,

Answering another question, Penny said that the De Beers’ Element 6 subsidiary, which makes lab-made industrial grade diamonds, will not make gem quality goods. He noted that De Beers has been approached several times in the past six months about diamond-backed funds, and wondered if it was appropriate for the company to get involved. He also said that the company has good relations with the banks and everyone can be confident about the continuation of De Beers.

In response to a question about finding a way for the industry to avoid price speculation, Penny said the only answer is to make sensible business decisions. He also defended moving sorting operations to Botswana, saying that
London is expensive and, therefore, the move makes economic sense.

Shine Stresses “Innovation”

Commenting on this unique free exchange of views between producer and stakeholders, DTC Managing Director, Varda Shine, noted that “events like this allow us to come together to take stock of where we are and to consider the future of our industry.

Undoubtedly, we are living in a very different world from that of a year ago and this obviously means we need to consider different ways of managing our businesses if we are to succeed.”

“Fortunately,” she said, “innovation is part of the DNA of our industry. Innovation is the hallmark of jewellery design and its appeal to the consumer, and this sense of creativity is what we need at all stages of the supply chain to enable us to come through these challenging times strongly.”

According to Penny, in his summary of the two-hour session, which was also attended by the Governor of the Province of Antwerp, Mrs. Cathy Berx, there are various economic indicators that the worst is possibly behind us. With prices historically rising after periods of recession in the US, he implored the industry to not waste this opportunity.

“Consumers still want diamonds,” he said.

More Diamond Town Hall Meetings are scheduled for Israel and India in the weeks ahead.


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