Gareth Penny, the De Beers’ Managing Director, warned the diamond industry to brace itself for price spike, attributing it to the electricity crisis in southern Africa- where over 60 percent of rough diamonds are produced.
The statement went against the conference mood, which is already complaining about the shortage of rough supply and the sharp rising prices of rough. Penny said here that the inputs costs have gone up which will ultimately mean that the sale prices should be adjusted, adding that the USA dollar’s weakening following the sub-prime rates crisis in that country will contribute to the need for price adjustment.
His statement was supported by Moti Ganz of Moti Ganz Botswana, who also runs operations in India, China and Israel and is an old hand in the diamond industry. Martin Rapopport from the USA said that they should borrow a leaf from Chief Linchwe II that in bad times they should stand together.
“There has been a real increase in the supply of goods into the market but at the same time we have had a compound increase of five percent per annum,” he said, adding that De Beers, through its Jwaneng and Orapa operations, has been able to increase the supply into the market currently standing at 50 million carats per annum.
“On the supply side we see a lot of improvements. Consumer demands have been improving because of the emerging markets, notably India and China,” he said. “But the greatest challenge for us as mining people is where to find the new mines. The input costs, including electricity challenges and the rising oil prices, have raised our input costs to 22 percent. We also have a problem of finding tyres; you can ask Seb (Sebetelela Sebetela) here who is the manager of the world’s biggest diamond mine. This year, 2008, is going to be an extremely difficult year and we should expect a rise in prices,” Penny said.
The Londoner said the industry is caught up in a period of uncertainty because of a raft of things including the weakening of the US dollar and the bank debt in the industry estimated at around US $12- 13 billion, according to the ABN-AMRO Bank – a strong supporter of the diamonds industry.
ABN-AMRO also stated that it is looking at plans of entering the Botswana market in order to support the local beneficiation efforts.
“We are looking at Botswana and South Africa. And other countries are India and Israel, including South America,” Victor Van Der Kwast said.
“The bank debt is rising within the industry but what is the problem? We have focus on the new emerging markets and the issue is how we do it better and quicker,” he said.
He said part of the industry problem is that not so many diamonds are carrying the brand, adding that only 10 percent out of the industry that is worth US $ 70 billion per annum is carrying the brand name.
“De Beers has carried the industry for a long time. We have to realise that we cannot do it alone anymore. We have to work collectively and we need a clear vision for the future and unlock potential from our leaders,” Penny said.
His statement annoyed some of the diamond industry’s billionaires, such as Lev Leviev of the Leviev Group which has operations in Namibia, Israel and Russia. Leviev accused producer countries of squeezing out the Jewish community, saying that the price increase is a designed ploy aimed at punishing them.