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  1. stolwyk

    22,691 Posts.

    Dryblower: Fresh air of competition

    Tuesday, March 23, 2004
    "TWO price rises in two months should tell anyone with a nose for business that something interesting is happening. When the price hikes are in a tightly controlled commodity like diamonds it is more than interesting, it is positively exciting.

    And that is precisely how Dryblower sees the diamond world as it enters what could be its most exhilarating phase since Ernest Oppenheimer cornered the diamond market in the 1930s and created the monolith we know today as De Beers.

    The first of the price rises came in January after De Beers said Christmas demand had been strong for jewellery sales so a 3% increase for rough diamond was justifiable. The second came late last week when another 5% was added to the price.

    Once again, the explanation was strong demand in consuming countries, mainly the US, and rising costs in producing countries with strengthening currencies, mainly South Africa, Canada and Australia.

    Dryblower accepts unconditionally what De Beers says about demand and costs – the diamond business, after all, is a gentleman's affair run by chaps with impeccable credentials, right school, right uni, right wife (generally their own) etc etc.

    But, what he thinks De Beers is keeping from the prying eyes of the outside world is that it is enjoying astonishing success with its new marketing strategy.

    About two years ago, De Beers said it was abandoning its role as the world's diamond monopoly (not that the chaps ever used that word). It said the new-look De Beers, in keeping with its shift from public-listed status to private, would actively encourage the development of new diamond "brands" and increased spending on marketing by its customers, the so-called sight-holders.

    The process of privatisation, the new marketing strategy which is ruled by supply and demand rather than tight controls, and the encouragement of new players in the diamond game is a tricky business designed to achieve several objectives at the same time.

    For starters, De Beers has been desperately keen for 50 years to get back into the US market from which it has been banned because of price-rigging allegations related to industrial diamond. It also knows that the monopoly game is over with the European Union gunning for all monopolists. And, the chaps know that arch rivals Rio Tinto and BHP Billiton have grabbed a slice of the diamond turf.

    It was for these many reasons that the Oppenheimer family and Anglo American privatised De Beers so that the bold new marketing changes, with no-one knowing whether they would work, could have a few years private development with potential losses hidden from the prying eyes of creatures like Dryblower.

    What a surprise, and what a fabulous turn of events for everyone in the diamond business, to see that the change is working. Sir Ernest's empire, built on the foundations of the Depression, has outperformed the smartest leopard and changed its spots.

    Gone are the tight controls. In place are the simple and immutable laws of supply and demand. In place of modest growth in diamond consumption has come rampant demand as increased (and targeted) marketing bites.

    For the diamond miners of the world this is remarkably good news. It helps explain why the share price of Kimberley Diamond has risen from 35c to $1.70 over the past 12 months and Namakwa Diamond is up from 8.4c to 39c.

    The real only question is whether the good news can continue. Dryblower, who is not an investment adviser, says why not? For 70 years the diamond industry has been under the thumb of a near monopoly. Suddenly it is exposed to the economic force of supply and demand – and no-one knows where that will take the price".

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