Philippe Mellier this week threw down the gauntlet to the diamond industry, and sightholders in particular. The De Beers CEO told Bloomberg News that the company plans to raise rough diamond prices by 5 percent every year as it aims to meet parent company Anglo American’s targets.
Anglo wants its diamond division to increase its “return on capital employed” from the 11 percent reported in 2013 to 15 percent by 2016. In other words, Anglo expects a more efficient use of capital from De Beers. With relatively fixed mining costs to contend with, Mellier and his team can most effectively improve profitability by driving up sales. Furthermore, as the firm anticipates production to remain stable at around 32 million carats in the near future, sales growth is expected to be fueled by steady and consistent price increases rather than by raising the volume of supply.
“We know the long-term trend; we know demand is going to be bigger than supply,” Mellier said. “One of our objectives is more stable prices and to drive volatility out.”
That said, Mellier’s 5 percent goal may be slightly aggressive, even if it will sometimes be attainable. ALROSA executives are working with a stated 3 percent annual rough price increase in their projections.
De Beers set the bar in 2013, reporting that its rough prices rose 5 percent during the year. Mellier told Bloomberg that the company has already raised its prices by 5 percent in 2014, adding that further increases are unlikely this year.
“sales growth is expected to be fueled by steady and consistent price increases rather than by raising the volume of supply.”