Market NewsCommentRalfe agrees with PolishedPrices?..

Ralfe agrees with PolishedPrices?..

By Charles Wyndham.

To me the most remarkable statements at the Anglo De Beers seminar in September were about the growth in demand.

Ever since the launch of Supplier of Choice in 2000, it has been growing demand by at least dollar GDP growth that has been the raison d’etre for all the upheaval SoC has caused.

This issue has been very much a case of a tennis match between DTC and with our contradictory views being lobbed back and forth.

You might remember fondly the articles between Derek Palmer in the red corner for DTC and Richard Platt in the blue for PolishedPrices.

It was Palmer who said in March 2004 that "The key objective of Supplier of Choice is to achieve a healthy, growth-driven industry. Evidence to date appears to demonstrate that it is working."

At this year's Basel Fair, Johnathon Kendall at a DTC seminar is reported as stating by the ADL magazine whilst giving an update on 2004, an even more bullish view, "We have seen an amazing shift in the way our industry is operating, a shift which has led to real significant growth…"

This tone was clearly set by Gareth Penny at the DTC January cocktail party this year when he said, "In 2002 we saw a two per cent increase in consumer demand world-wide, in 2003 a four per cent increase, and in 2004 we are hopeful of seeing a figure of five or six per cent, or even higher. All of us here can take great pride in that achievement."

Varda Shine's at the Anglo De Beers seminar was strongly self laudatory, "..During the first seven sights of this year we have sold 14% more than last year and actually the highest in the last 10 years. This is very much the result of the demand we have created. This is very much one of the main reasons for a very hot – very big demand and very hot rough market."

The fact is that even as Varda spoke premiums in the market had dropped sharply. Since then, with an even more substantial eighth sight coming onto the secondary market, adding its weight to the current liquidity squeeze, premiums have continued to fall.

No one, less than two weeks after the statement, can possibly refer to the rough market as being "very hot". It must have been quite a cold shower.

Now, at last, we get to the real point, not that we in PolishedPrices have continually questioned the success of SoC as measured by the target set by the DTC itself.

No it is none other than Gary Ralfe who has come out and agreed with PolishedPrices.

At the same famous Anglo seminar he said, "If we look at our demand side summary, you’ll see that consumer demand growth has, over the recent six year period, increased by 1.4% per annum compared with 1.5% over the historic period. I think this is actually disappointing (my highlights) and I think that Gareth and Varda will be showing ….that this number is going to improve substantially as we go forward."

I am, almost, lost for words.

I think that I must be a Martian. The question is am I the only Martian?

It is clearly only because of the DTC’s power of being a monopoly that it has been able to pump out these gargantuan sights. I am told that companies at the last sight, which we estimate at towards $900 million, received goods which previously were outside their allocation zones. 

This all seems to be taking the principle of force feeding a bit far, especially when we know that it is not backed by any record increase in demand.

It makes the resultant case of bulimia to add to the pool of polished already out there, hardly surprising and certainly rather disagreeable.

The strong rough market is clearly not the result of demand pull but supply push. The current softening has become a seasonal occurrence. This year the weakening is distinctly sharper as De Beers have opened the flood gates to meet their surprising target for the second half to match first half sales.

The only justification, apart from its own profit and loss account, for pumping out the rough as the DTC have done at this time of year is if there was incontrovertible evidence that demand really has been boosted. The words of Ralfe confirm what we all know looking at the disappointing performance of polished prices.

WWW International Diamond Consultants predicted years ago that there would be a rough shortage and looking forward there is no reason to change that view. In fact, all the emphasis that De Beers and others are putting on growing and finding production is clear proof.

Unfortunately, with the market at the mercy of a dominant supplier there are going to be more vicious ups and downs against a background of a long term upward trend.

In the short term there appears to be no reason not to believe that we will have a reasonable season.

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