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Future of De Beers ‘London Mix’ uncertain
The big question in the industry is: what will happen in the next few years?
By: Diamond World News Service
Oct 22 2005 12:00AM
Reference: 50  


IT’S just four months to go before the hand-over that will see Diamond Trading Company (DTC), managing director Gareth Penny take over as De Beers managing director, the legacy of the company’s London-based distribution arm, which has long controlled sales on the world rough diamond market, could end, says Emma Muller in Business Day. That is what De Beers’ biggest shareholder, Anglo American, signalled last week. The big question in the industry is: what will happen in the next few years?

A side effect of Supplier of Choice has been the commoditisation of diamond brands, which some fear could lead to a price war and fashion fatigue. Forced gravitation to southern Africa, and failure to achieve stated goals, have put it on the backburner. Supply-chain changes could mark a renaissance for rough dealers, who under Supplier of Choice have been required to change into value-added, brand-oriented businesses.
“There is going to be a very important role for dealers as the shift moves away from downstream investments advocated by major rough diamond producers,” said IDH’s Daniel Horowitz. “We expect to see a lot of goods that will no longer be manufactured for downstream requirements and need to be channelled via dealers.”

IDH is challenging De Beers in a European Commission antitrust case for alleged abuse of power relating to Supplier of Choice, by removing it from the rough dealer customer list. The market fears De Beers may no longer offer consistent supplies via its “London mix”, a level of consistency in volume that improved under supplier of choice and which other producers cannot match. The hardest hit would be small to medium-sized diamond companies that have changed their business model to comply with Supplier of Choice, and rely on DTC’s consistency of supply to sell their products downstream. Several major sightholders have moved to Botswana, South Africa and Namibia to secure rough diamond supplies. There is little chance of a major factory exodus to India and China, which have recently changed into low-cost, high-tech manufacturing hubs. But India is wary of seeing rough supplies curbed. Others are waiting to see De Beers’ new focus.

The DTC over the past few years under Penny has focused mainly on its Supplier of Choice policy designed to rid De Beers of its antitrust problems, grow demand downstream, and generate higher prices for its rough. Hefty marketing and advertising campaigns for the policy have been an important driving force for increasing awareness in growing markets such as India. But De Beers managing director Gary Ralfe told analysts last month that growth had been disappointing. De Beers remains the cheapest producer on the market and its antitrust problems in America and Europe have not been solved, five years after initiating the policy.

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