DTC sales to suffer due to prevailing market conditions

DTC will face a decline in sales this year due to prevailing market conditions and bankruptcy which is not conducive to price rise according to Nedcor Securities. The research note published by Nedcor states that the diamond market is gloomy as rough diamonds are supplied by the major mining companies at unrealistically high prices and polished prices are driven lower by the buying power of the major chains stores in the United States. At the same time, debt levels are high and interest rates are rising, it said, adding India was the most vulnerable to high debt and rising rates.

�Already the market has seen bankruptcies; though so far they have been small. However, the market is awash with rumours of a large diamond company which may be forced into bankruptcy protection as one of its banks (rumoured to be HSBC) has indicated that it is not prepared to extend more credit. Whether this rumour is accurate or not, the fact is that the banks are becoming more, rather than less, concerned,� the note said. It said that adding to the woes of the industry are the DTC�s efforts to boost its own profits.

�The renegotiation on the DTC contract with the Botswana government is believed to have eroded De Beers� profitability in that country by a significant amount. One way in which the DTC has tried to recoup margin is the introduction of Value Added Service (VAS) to its sightholders. This adds to sightholder overhead at a time when rough prices are high and interest rates are rising,� it said. The note also added that should global interest rates continue rising and growth slow, the note warns, projections for 2006 DTC sales "will certainly need to be adjusted downwards."