diamond stockpile

Diamond stockpile grows…

Isaac Mostovicz writes...

According to Rapaport, the availability of rough diamonds will be less during the first half of 2007 due to several reasons.

Lynette (Hori) Gould of De Beers said:

There will be fewer Russian goods in the mix ($100 million less in 2007) as a result of formal commitments agreed with the European Commission.

Gould added that De Beers Canada production would not yet be available yet, and Botswana producer forecasts are slightly lower. He adds:

In addition, the DTC is committed to supporting the intentions of the southern African governments, with whom we work, to develop their diamond cutting industries, so we are selling a greater volume of rough (that is suitable for processing in local beneficiation enterprises) in southern Africa

Is this plausible?

The fact is that 98% of the world production are diamonds less than .7 CT. My feeling is that the Russian and the Canadian have relatively larger goods and to feed SA polishers you need larger goods as well…

There is a need to wash the excess supply of the tiny and cheap goods somehow and this, if you see this week’s comments on Rappaport, is not easy, the only way to sell these less desirable goods is to bundle them with more demanded goods that the DTC is increasingly being deprived of.

I suspect that we see here a growing stockpile in 2007.

Hiding the problem from the public is an acceptable tactic as long as the industry does not start to believe in that the stockpile does not exist…

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The diamond bubble: an email conversation (Part 4)

Isaac Mostovicz writes...

This is the fourth of six posts documenting an email exchange between Randy Pearson, of Allied Diamonds and Isaac Mostovicz of Janus Thinking.


From: Isaac Mostovicz
Sent: 10/9/2006 6:24:12 PM
To: Randy Pearson

I think that Randy raises a point that needs a further exploration. Until the 60s the range of what were considered diamonds suitable for jewellery was much more restricted. The Indians learned how to produce rough that was previously considered unsuitable for jewellery. I raise the following question: is it possible that the market became too large in the sense that many of the goods that are offered are unsuitable for consumption? In other words, the production of real diamonds is very limited and if we manage to market only these goods, the offer will be limited but we will be able to raise prices to very high levels as the availability will not be there.

One of the reasons for the SoC was the unsold stockpile of $5bn (US). The claim of the shareholders was that the worth of this stockpile is nil, something that the DTC tried to prove wrong by selling the stockpile for the price they wanted. However, selling the stockpile was not an indication that the need for these goods exists. To take an analogy from what we have on hand, we, at Allied, have plenty of goods but if we want to be faithful to our program, only a limited part of this stockpile is suitable as need satisfiers. Nevertheless, it is our responsibility to find ways for using these goods for satisfying clear and existing needs.

Another example is Patek Phillipe that produces only 18000 watches per year regardless to more markets that open. It is very tempting to try and to cater to the entire world but there are other ways for making money and mass marketing may not be suitable for diamonds.

The last point that Randy raises is interesting. Good manufacturers burned their fingers in the last years by manufacturing. It is possible that people will try to slow down manufacturing as keep prices of rough at bay and gain from selling his existing stock, effectively lowering the level of stock. I am not sure that all will follow but as a different policy is the way of those manufacturers who might suffer and even close down, we are facing an interesting period.

Isaac


Once again, check back at the same time tomorrow for the next installment.

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