De Beers to end cartel role and be supplier of choice
BY CARL MORTISHED, INTERNATIONAL BUSINESS EDITOR
DE BEERS will this week formally end its role as official cartel of the diamond industry. The company, which boasts the slogan "A diamond is for ever'', is abandoning a 60-year policy of supporting diamond prices and, instead, wants to reinvent itself as a ''supplier of choice" in a market tainted by association with smuggling and civil wars.
De Beers is inviting clients to a presentation on Wednesday, when it will seek to formalise the secretive arrangements by which certain buyers are invited to "sights" by the Central Selling Organisation. Held ten times a year, the "sights" let privileged clients see the CSO's stock of uncut diamonds. By adjusting quantities and quality, the CSO was able to maintain price levels.
For the first time clients will have a written contract, which will establish the basis on which they do business with De Beers.
The troubled diamond company, which has controlled some 70 per cent of the market, has been hit by the huge cost of acting as supplier of last resort, maintaining a $4 billion (£2.6 billion) stock pile of gem stones. De Beers's efforts to manage the market came a cropper in the 1990s with a flood of diamonds leaving the former Soviet Union and a slump following the Asian economic crisis.
New producers, such as Argyle in Australia, refused to join the De Beers cartel, making a mockery of the company's efforts to police the market. To add insult to injury, De Beers has been hit by bad publicity over warlords' diamond sales funding civil war in Sierra Leone and Angola.
A year-long study by Bain & Co, the management consultancy, has concluded that De Beers must abandon its monopoly and become an active marketing organisation, selling the output of its own mines, which account for half the market. A De Beers spokeswoman said: "The idea is to increase demand rather than control supply.''
By formally dropping its role as official diamond monopoly, De Beers also hopes to end its antitrust dispute with the US. Its directors currently risk arrest if they visit the US.
(from London Times)
And if they fail to increase demand, prices will fall.
Falling prices are bad for retailers carrying inventory.
PHIL |
