De Beers, the world’s largest diamond supplier, is being increasingly constrained by supply shortages and political demands in southern Africa.

In a recent letter to clients, De Beers’ Diamond Trading Company (DTC) warned of reduced supplies, notably in South Africa, as a result of increasing pressure from other producing countries to supply their own local industries.

It also warned clients in South Africa that supply of better quality 2 carats and larger goods will be constrained by De Beers’ relatively limited production of this range size, which it said is “substantially” below the current purchases by South African-based clients, or sightholders.

While De Beers has already warned for supply shortages, the company’s difficulty is in meeting the ambitious targets of the governments in southern Africa and executing them with a global client base of 93 sightholders and limited supplies.

In South Africa, the challenges appear to be intensifying as De Beers has less goods available with the recent closure of Cullinan and Namaqualand. At the same time, the government is putting in place a State Diamond Trader body which will be offered a proportion of its production for local diamond cutters in accordance with the new legislation.

The letter also focussed on the need for clients in South Africa to start manufacturing a wider range of rough diamonds profitably by enhancing their manufacturing technology.

“South African-based clients need to consider how they can profitably take a broader range of goods,” it said. “These objectives are unlikely to be achieved without innovative thinking around enhancements to manufacturing technology and efficiency to optimise the local manufacture of the goods being made available.”

In addition, DTC said competition for supply from London, its traditional supply centre, is expected to become increasingly intense, as more goods are sold through the local DTC’s in southern Africa.

To meet the supply challenges in South Africa, it said it was considering only allocating to those clients, or ‘applicants’, that could demonstrate sufficient manufacturing capacity to handle the ranges of diamonds being sought.