In the year 2002, the worldwide diamond industry unhurriedly "strolled back" into the direction of its record 2000 year - but still didn't fully make it. In some respects, the industry even took a few steps into the wrong direction. The diamond pipeline became heavier with rough supplies growing by almost 10%, polished wholesale demand only grew by 4%, while diamond jewelry retail sales saw a growth of 3%. Overall, however, the diamond industry fared well - and certainly better than expected. Worldwide diamond jewelry retail sales totaled $56.9 billion, containing a diamond value (at polished wholesale prices) of $14.5 billion.

 

Economic uncertainties, continued weak stock markets, low consumer confidence, unnerving corporate "creative accounting" scandals, the Afghanistan war and the long count-down before the Iraq invasion, constrained the growth of worldwide retail sales for diamond jewelry to only 3% (both in US$ and in local currencies) - which, paradoxically, exceeded industry forecasts and improved sentiments in early 2003. (The sales were aided by a strong end-year sales boost, especially in the USA)¹ But from an industry perspective, some of the trends are not encouraging.

 

The polished stock overhang in the major cutting centers grew by $400 million to some $4.3 billion, which is the equivalent to 30% of annual polished consumption. In the United States market an ever larger figure may be applicable, partly because of replenishment by the jewelry trade, but also because many cutting center inventories continued to move to New York. Last year was not a year in which buyers traveled too often to the cutting centers. Clearly, the level of polished manufacturing ran well ahead of polished demand - there are some estimates that the cumulative polished overproduction may be in the range of $800 million to $1 billion.

 

Likewise the diamond industry's banking indebtedness rose from $6.1 billion in early 2002 to $6.9 billion by year end - and to this one must add the amount of some $300-$400 million of creative public debt (bonds) outstanding, financing instruments which had been issued to reduce banking debts. It is fair to say that the industry banking indebtedness of the major centers (India, Israel, Belgium, New York and Johannesburg) is the equivalent to fifty percent of the annual world consumption of polished diamonds, measured at polished wholesale prices (pwp), sometimes also referred to as ex-cutting center prices.

 

Cynics might say that this merely represents the terms of trade - 180 days supplier's credit by polished manufacturers and dealers to the jewelry trade - but this simplistic view fails to reflect the gravity of this situation. In January 1999, the comparable banking debt was $4.66 billion - thus the industry's banking indebtedness grew by 48% within a 4-year time span, even excluding the bond flotations. As the diamond jewelry retail market fluctuated and is below the 2000 record year, the tremendous increase in debt should be considered as the financing of higher pipeline rough and polished inventories. The (too) long periods of polished supplier's credit is not something "new" of the last year or years, therefore it would be erroneous to attribute the indebtedness growth to this factor, as the markets only expanded a tiny fraction of this growth.

 

Rough Prices Recovered Strongly 

Most remarkably, however, is the recovery of rough diamond prices, which suffered a considerable hit in 2001. During 2002, the Antwerp market price of 4-grainers (1 caraters) increased by 8%-20%, depending on type or rough; 8-grainers (2 carats in the rough) rose some 10%-16%; and larger goods became 10%-22% more expensive. Also in the very small and cheap ranges of rough, which had been severely battered in 2001, saw double-digit price increases. Thus, the market saw a distinct correction following 2001 when, on the rough diamond supply side diamond prices - the unit value per carat - deteriorated and fluctuated in a downward trend of 15%-25%, resulting in an average overall rough price plunge of 20%.

 

In 2002, De Beers adjusted rough selling prices upwards in January and, again, in June. No need to stress that by sheer coincidence other suppliers firmed prices at approximately similar times. BHP-Billiton's Gold and Diamond Division director Kowie Strauss has gone on record that by early 2003 "rough diamond prices had reached near historic highs". It's the word "near" that indicates we aren't there yet. Measured in real terms, rough prices were still higher in the early 1990's. Our own analysis of the worldwide sales by the DTC to the market shows (in early 2003) average values of $66-$68 p/c which further confirms that prices have bounced back to the late and mid 1990's levels.

 

Incidentally, in January 2003 the DTC further increased rough prices by some 8%-10% and an additional (similar) price rise took place in the April/May 2003 sight. Unfortunately, polished prices didn't rise anywhere near the rough increases, which dampened the profitability of manufacturers and downstream industry. De Beers compensated its clients for their tighter margins by pricing DTC goods for many months considerably below the prices of the outside goods. This trend continued in 2003 and premiums paid for DTC boxes were often in the 10%-15% range. It was worth it to have been a DTC sightholder in 2002. Not surprisingly, the DTC succeeded in selling $5.15 billion worth of rough, which is 15.7% above the level of 2001. It was also more than actually needed by clients - who, understandably, were unwilling to forego opportunities to take profits and to recover some of the losses incurred in 2001.²

 

Worldwide Diamond Production Reduced In 2002 

We estimate the total 2002 rough supplies to the market were worth some $8.35 billion, thus De Beers continues to hold some 62% of the market. The higher supplies to the market came partly from producers' inventories, as mining output may have slightly (2% - 3%) fallen by value - this is said with some hesitation, as the rough price volatility makes it more difficult to put a firm price tag on the production. Our preliminary research puts the 2002 new mining production at $7.72 billion, as compared to $7.9 billion last year. Russia's output declined from $1.6 billion to $1.47 billion (Alrosa itself accounted for $1.38 billion, plus $90 million of Nyurba daughter company), but Alrosa's president has gone on record aiming at $1.6 billion for 2003 production. Plans are not always realized.

 

In Botswana, production went up from $2.08 billion in 2001 to $2.48 billion in 2002, as a 7% carat recovery increase was achieved through the introduction of new hi-tech efficiencies. Across the border in Namibia the story was less positive: Namdeb's overall carat production fell by 8%; its land operations were reduced by slightly over 6%, while its marine mining was down by 10%. The owners of Namco put this marine mining operation again into bankruptcy, which was a further blow to Namibia.

 

In South Africa, the De Beers production was slightly down by 3% "because of the spending restrictions as a result of debt management", even though some of these constraints "were lifted in the middle of the year," according to managing director Gary Ralfe. Non-De Beers South African production has become harder to monitor, as considerable amounts of goods are smuggled in from Angola, DRC and other countries, and subsequently declared as having originated from small alluvial diggings. Last year we estimated that the South African production stood at $1.25 billion, as we noted some $350 million worth of rough sales to the United States. We did consider some $200-$200 million worth of rough to be derived from questionable origins: mine thefts, smuggled Angolan and Congo goods, and, God forbid, possibly "conflict diamonds". Based on additional information received from the Chairman of the South African Diamond Board, it seems that the U.S. statistics may well have been grossly distorted and South African imports may well prove to have been goods from Israel or Belgium, and not from primary rough source countries. This may sound implausible, but it nevertheless seems to be case…

 

At the cheaper goods Argyle mine, carat production increased a hefty 28% to 33.6 million carats in 2002; however, in value this translates only to some $80 million to revenues.³ In Angola persistent rumors were hitting the market in the last quarter to the effect that the government will decide to abolish its "exclusive buyer" arrangements with Ascorp. As a result, Ascorp buying prices came under pressure and, at the same time, many small alluvial miners decided either to smuggle or to wait in the hope to secure better prices in a more competitive selling situation. Though rough exports were temporarily halted for a few weeks, in February 2003 Ascorp's exclusive license was renewed up to August 2003. Nevertheless, remarkably few Angolan goods are visible on the market.

 

In Canada's Ekati mine, the lower quality Misery Pipe was brought into production in 2002, causing a decline in the average values of the output. The Ekati production will always be somewhat erratic. The average per carat value was $170 a few years ago, during most of 2002 it was in the area of $130 p/c and presently output appears to be averaging some $90-$95 p/c. BHP-Billiton's diamond chief Kowie Strauss confirms that "the average value over the 17-year life of the mine is $140 p/c." As the mine consists of some ten different "deposit sources" which distinct different grades and diamond qualities, management tries to "mix" various production sources, but its maneuverability is limited.  In terms of per carat values, the mine has hit a low in 2002 and 2003 may not be much better, but in 2004 and 2005 an improvement should be seen. [In the first quarter of 2003 production at 1.02 million carats was up 9% over the comparable quarter in 2002.  It is for these and other reasons that we estimate that, expressed in carats, worldwide 2002 diamond mining production went up, and will continue to rise in 2003 - but cheaper goods replaced the reduced production in better goods. The De Beers group overall production, measured in carats, went up 4% to reach 40.2 million carats.

 

De Beers Signals That Its Inventories Are Still Significant 

It is intriguing that rough prices saw a profound recovery, even though the rough market was over-supplied. It must be stressed that the outside market, valued at some $3.19 billion, remained rather similar to 2001. The incremental supply came almost fully from De Beers inventory withdrawals. De Beers announced that it "reduced its diamonds stocks by nearly US$1 billion", though we believe it may be slightly less.⁴ As the company's own mines produced $3.56 billion worth of diamonds in 2002, the De Beers stated reduction in inventories equals about 28%-30% of its own world-wide mining output. What is further noteworthy, and it will impact also the diamond pipeline in 2003, is the De Beers statement that "in spite of the great reduction in stockpile this past year, we still have some way to go before we can claim to have no more than working stocks, which is our goal."⁵

 

In the following table it can be seen that, in 2002, the market share of De Beers was restored to its pre-2001 levels. In 2002, it still had access to 35% of the Ekati mine rough, though this contract was terminated as of January 1, 2003. The De Beers marketing contract with Alrosa is currently under review by the competition authorities at the European Commission. In 2002, the agreed sales took place in context of "willing seller - willing buyer". However, if the EC does not approve of the contract, it is unlikely that these purchases by De Beers will continue. The EC will not condone a "willing buyer - willing selling" arrangement if the horizontal agreement is considered illegal. A decision by the EC is expected in the months ahead.

 

The mining values need a footnote. It must be recalled that in 2001, we conjectured that if De Beers would adjust inventory values to market values, it might have had to write off some $600 million.  If a similar adjustment would have been made at the end of 2002, much of this value would have been restored. The market assumption that the DTC stockpile is currently close to the minimum needed working stock level of some $2.5 billion may be off beam and it is surely not without good reason that Gary Ralfe saw it necessary to stress that De Beers has still "far more than just working stock". On the other hand, the fact that in 2003 De Beers increased prices in January and again in the April/May sight, each time some 8%-10% (and especially in the +2 carat ranges) has fuelled again market speculation that De Beers may have run out of stocks.

 

Producers Impose "Discipline" On Clients  

We attribute the price recovery to a large extent to the far greater skills and ability of the producers to "impose discipline" on their rough clients. Alrosa, for example, has moved to a system of domestic tenders to sell of its larger goods (from 5.00 carats and up) through tenders and it ensures that rough sold to the local market is actually manufactured in Russia. It has become more difficult (and thus less frequent) to "smuggle" rough out of Russia; the legal possibility to export the equivalent of 15% of domestic purchases has also helped to move exports into formal channels. Russia has become far less a "wild west" as it was in the past.

 

Clients of De Beers have committed themselves to some 200 specific marketing initiatives to grow consumer demand for diamond jewelry. This involves the clients' partnering or otherwise joint-venture agreements with down-stream jewelry players. Some 25% of the rough allocation by the DTC is presently tied in to these marketing initiatives. This has made it far more difficult, if not almost impossible, for the sightholder to resell that rough in the market.

 

BHP-Billiton's policy to have part of its rough manufactured for its own subsequent downstream selling (branding) and its greater emphasis on entering into joint ventures with their clients also assures that greater parts of rough are not resold on the market. The structural changes in the rough distribution system (remember the “spaghetti chart”) and the downstream verticalization of the industry are reaping success.

 

The greater push will, of course, come with the actual formalization of contracts between the DTC and its clients. The long awaited approval by the European Community's competition authorities for the DTC's Supplier of Choice marketing system was finally granted and the DTC is presently in the final phases in its decision-making process on its future client list. The transition process - during which clients were always eager to purchase more rough than they needed to please the dominant supplier - will be completed by June 2003, when those will lose their sight-privileges will be put on notice. From the beginning of 2004, the DTC will only have clients with whom they have signed two-year delivery contracts.

 

To many (if not most) future ex-sightholders, the loss of their rough allocations will not come as a surprise. These companies are frantically in search of alternative rough supply sources, only to discover that there aren't too many. This is an additional reason that the rough market is strong, "very hot", with prices rising - even if the prices of the resultant polished don't warrant the price levels.

 

If in 2001 one saw that the gradual removal of strong price-protective artificial supply-demand controls triggered the steepest sudden decline in prices since the crisis of the early eighties, a weakening only stemmed when the "dominant producer" (De Beers) partly reasserted its traditional custodian role. A year later one can cautiously draw the conclusion that the transformation from a supply controlled to a market driven industry is booking some early successes - the "shocks" are probably behind us. The price increases in 2002 were mostly the result of the effective marketing strategies of all the major suppliers, greater marketing efficiencies and streamlining of the pipeline. Those with steady rough suppliers were reluctant to resell their goods into the market (hence the over-manufacturing of polished), while many less fortunate players simply found it difficult to find rough. It is this tight outside market that drove up the Antwerp market price - and will do so more in the months ahead.

 

India's Position As Super Largest Manufacturing Center Further Enhanced

Though we are always wary of statistics, India imported in 2002 again more carats than all the mines together produced. In 2002, the Argyle mine's production grew by 28% from 26.2 million carats to 33.5 million carats. That also meant more rough sales to India. Though 2002 worldwide new diamond production (industrials, near-gems and gems all together) would be around 120 million carats, the Indian industry alone imported some 129.3 million carats of rough last (calendar) year, at an average value of $33.73 p/c.⁶ Often analysts ignore Indian rough exports, which, in 2002 totaled 39.9 million re-exports, at $4.58 p/c. [These exports are puzzling; they are probably mostly inspired by fiscal and accounting considerations.] In any event, the rough that remained available for domestic manufacturing in 2002 came to 89,289,000 carats. [In theory, assuming correct rough export valuations, the average price of rough for manufacturing would be $46.78 per carat. We believe it must be lower and we tend to put some serious question marks around the rough re-export values].

 

The 89,289,000 carats of rough available for manufacturing would, at an average yield of 20%, produce 17,857,800 carats polished. But that's not what the export figures show. The official mind-boggling and intriguing polished export figure for (calendar year) 2002 is 36,980,000 carats, valued at $7.025 billion. Given the low yield on the small goods, it is impossible that this would have been produced out of the "available" net imports of rough - and this means that either India supplied quite a lot of polished out of inventory or it processed substantially larger amounts of rough than the statistics would indicate. The latter option seems to be the more plausible. There is a third option which I, in desperation, often prefer: let's simply throw all Indian statistics out of the windows and admit frankly and unashamedly that there are hardly any outsiders who ever will really comprehend or understand the economics of the Indian diamond industry. India remains an enigma - and that is both the industry's greatest strength and charm.

 

What is beyond dispute is the fact that the average size of the Indian polished production would be close to 0.02 carats per stone (or 50 stones per carat). If the export figures are deemed to be correct, that means that India exported 1,849,000,000 polished stones in 2002. [In more comprehensible language that is pronounced: 1.8 billion polished stones!] Though it is clear to everyone that India is producing also more and more larger goods, the considerable addition of Argyle rough to the market (and not to forget the expansion of Botswana's Orapa mine either) would rather point to an increase of the smallest goods averages. The fact that nobody really understands the inner-workings of the industry has provided it with tremendous leverage over the producers. When the DTC sells a box to the Israeli, Belgium, South African or New York industry, it knows exactly how much the manufacturer "will make - basically, the producer "sets the manufacturer's margin". In India, this isn't the case - producers may believe they "have a good handle" on what takes place, but in many cases they don't have a clue. Years ago, when rough replenishment licenses were traded at premiums of 20%-30%, the Indian diamond industry could occasionally lose at the production - and still make a lot of money.

 

The vast majority of the Indian output, the infinitely small diamonds in the range of 1.5-3 points in the polished, may have a manufacturing cost of less than $0.50 per stone. Just imagine, manufacturing 20 such diamonds for less than $10 labor cost. What about the raw material costs? Take a rough diamond imported for $10 p/c, which may give a polished yield of 20%. The resultant polished would have a material cost of $50 p/c.; consequently, a 0.02 carats polished (a 2-points polished stone) would have a material cost of $1.00. Add labor costs - and you might get to $1.5-$2.00 per stone. After reading those figures, please start reflecting on the enormity and sheer size of exports of $7.025 billion.

 

We estimate that India produces today some 50% of the annual world polished consumption by value, and 80% by weight. At the same time, India has become financially probably the strongest manufacturing sector and its largest companies are among the fastest growing diamond conglomerates in the world. Competing with the Indians? Forget it. The challenge faced by any diamond company in the world is how to work together with this industry, to set up joint ventures in manufacturing and marketing, to get some of the benefits of center. It is so large and holds so much potential, that it seems to have room for all. India is, indeed, the "big story" of the 2002 diamond pipeline.

 

Sometimes it is worthwhile to reflect a moment: the Indian cutting center was created in the early 1970's when the prices of industrial diamonds had plummeted, due to the advances of synthetic industrial materials. It was then discovered that some industrial goods could be processed using cheap labor and the resultant polished good be applied to jewelry. Thus the term "near-gem" or "Indian goods" was invented. Now, India has not only made these "near-gems" the hottest item in the American market, it is also successfully polishing virtually all other ranges. All the world's major players in the diamond industry reckon that India will continue to capture an ever-greater part of the diamond market.

 

The sudden growth (as well as declines) of cutting centers is one of the more fascinating part of the annual pipeline. This year we have added China in a separate box, a distinction it earned because of its $800 million worth of domestic manufacturing, employing some 18,000 workers, mainly in Shanghai and the Guangdong and Shandong provinces. China has rapidly become the world's second largest diamond manufacturing center, when measured in manpower terms. There are no significant changes in the other cutting centers, even though 2002 saw a further diversion of trade in the diamond pipeline due to fiscal reasons and because of the formalization of the Kimberley Process. The Belgian industry was required to report end-of-year rough inventories, in order to implement the Kimberley "amnesty" on old stocks, triggering some temporary "parking" of rough in Israel.⁷   

 

The United Arab Emirates have become a major rough diamond transfer center in which some 45 diamond companies (including some 20 DTC sightholders) have opened operations. The liberal tax-free environment facilities equity creation in otherwise heavily undercapitalized companies, something that will enhance the financial basis of the industry. In Dubai, the Indian community is the largest foreign ethnic group and many Indian diamantaires enjoy the luxury, weather and lifestyle of that booming metropolis. Though definite figures are difficult to verify, it seems that over $1 billion passed Dubai in 2002, and some Indian diamantaires have opened factories there. The diamond banks (especially ABN-AMRO) are very active in that market.

 

Retail Picture Provides Mostly Positive Signals 

Research conducted by De Beers indicates that 2002 worldwide diamond jewelry retail sales grew by 2.5% (in value) as compared to 2001. When measured in jewelry pieces, the market grew by 6% from 62.5 million pieces in 2001 to 66.25 million in 2002. However, the two simultaneous trends (1) towards consumers buying ever more smaller and cheaper diamonds and (2) widespread retailer discounting, continued to pay its toll: the average price of the jewelry pieces declined by 3%, though much of the lower sales yield was absorbed by the retail sector. The diamond manufacturers and exporters had, as was pointed out earlier, a rather good year.

 

De Beers has ceased to provide "absolute" figures, but rather releases the trends detected in its research. According to De Beers, the strongest growth in the diamond jewelry retail sales took place Asia-Arabia, where (measured in dollars) sales were 8% higher than in the previous year. In the Asia-Pacific and American markets, a growth of 5% was recorded. Europe lagged behind with a growth rate of merely 2% in dollar terms - and, given the strong euro, it actually declined by -3% in local currency. Reportedly, the "disaster areas" were France and Germany, where diamond value fell by respectively -7% and -10%.  In local currencies these declines were even greater. The Italian market also declined by some 3%-4%. Measured in dollars, the Japanese market continued to decline with diamond value going down a further 3% and Hong Kong remained more or less the same as in 2001.

 

The single most important market remains the United States. The research supports the finding that the pace of growth in the number of diamond jewelry pieces sold was more than double the pace of growth of the diamond jewelry market in general, meaning: more and more pieces with lesser diamond content. These trends are confirmed by the U.S. polished diamonds import picture. Total gross polished diamonds imports into the United States came to $11.5 billion, which is 14.6% more than the 10.0% growth recorded in 2001. In terms of carats, however, imports increased by 22.9%, confirming the noted decrease in average sizes. Also the average price of the polished imports declined by 6.77% to $576.63 per carat, which is similar to the price level of 2000. But perhaps the most intriguing (and some may say disturbing) fact is that, measured by weight, 71% of all diamond imports are below 0.5 carat and have an average per carat import value of $189.71.

 

Our research puts the U.S. diamond retail market (at polished wholesale prices) at $6.615 billion, sold in some 40.1 million pieces of diamond jewelry. This would indicate that, at an average, a diamond jewelry piece would contain $162.86 worth of diamond value - pointing to an average diamond content per piece of far below one carat. Thus the average total retail price for a piece of jewelry in the United States was last year some $678 (in which the diamond content as polished wholesale price would be some 24%). As the average per carat value of all imports are $576.63 per carat, we can definitely see a two-tier market in the United States: a vast growing market of diamond jewelry with little or no diamond value and a market of expensive goods with diamond values of $1,000 and more.

 

Some observers have called the U.S. market discourteously a "diamond junk market", pointing out that imports of small goods (of mostly diamonds of 0.02 carats) from India are 57% of the total imports at an average value of $162 per carat. The imports of polished diamonds from India into the United States rose (measured in value) by a hefty 37.2% in 2002 as compared to 2001. This dramatic growth came very much at the expense of Israel and Belgium, but mostly Israel. In the smaller goods (below 0.5 carat polished), U.S. imports from India rose by 25.0%, while imports from Israel in that category went down by 15.1%. Belgium fared better, with a 5.1% increase of sales of smaller goods to the United States. But the real story is hidden in the non-traditional Indian goods, polished from 0.5 carat and up. In that category India's exports to the United States grew by 82.6% (almost doubled) as compared to the previous year. Sales from Israel and Belgium in those goods increased by respectively 16.3% and 11.7%. 

 

Exports of polished diamond totaled $4.40 billion, which is 12% more than the $3.90 billion exported in the previous year. If we assume that the difference between polished imports and exports represent the lion share of the domestic market, then $7.1 billion was diverted to U.S. local consumption or to stockpiling in the United States. As, by value, rough imports exceeded rough exports by $373.3 million and some of the domestically manufactured goods were also diverted to the local marker, it is reasonable to view the total diamonds "available" for sale to come to $7.5 billion (measured in polished wholesale values). Actually, our research would put the U.S. diamond consumption (at polished wholesale prices) at $6.615 billion. This suggests that the U.S. pipeline absorbed some >$0.8 billion in diamond jewelry retailer and pipeline stock replenishment and in increases in New York polished trading inventories.

 

Just as in 2001, we found that in 2002 the retail margins remained under heavy pressure. The average prices of polished diamond supplies, at wholesale prices, to the jewelry industry continue to erode. Worldwide, we believe that some $14.46 billion worth of polished diamonds were sold (at wholesale polished prices). Generally, the wholesale value of the diamond content in the diamond retail sales is in the range of 22%-25% at an average and this changes dramatically in different geographic areas, very much depending on inventory turnover cycles, fiscal regimes and retailer overheads.  In expensive pieces the value ratio of diamonds to other materials is different.

 

When the retailer discounts his jewelry sales, this mark down is not across the board. In theory, the diamond content (measured in wholesale price) in the final retail sale increased, as the retailer's "beating" was mostly in his mark-up and less in the materials. The net effect of all of this is that more carats were moving for less money.  Based on import and export data of polished and other indicators, we believe that 2002 saw a further increase in carats sold, far beyond the 4% increase in diamond values sold.

 

When this review is written, 2002 is well on its way. Polished imports into the United States continue to grow far beyond the growth in retail demand, which may well be related to the precautions taken in respect to the Middle Eastern hostilities. Retail demand is firm and De Beers executives are confident that diamond jewelry sales continue to outperform other luxury goods. In the cutting centers, business has been mostly quiet. De Beers was, however, able to significantly increase its sight allocations and BHP-Billiton was able to get a further rough price increase accepted by the market. Given the not so sanguine world economic outlook, the diamond industry has neither reason to complain - nor cause for jubilation. Historically, the pipeline players tend to be cautious and conservative. At the end of the day, with the benefit of hindsight, the business performs often better than expected. That was the case in 2002 and there is no reason why this tradition will not continue in 2003.

 

Notes

1 - In the US Christmas season (i.e. last quarter) 24% of all 2002 annual diamond jewelry retail sales took place, which was an 8% increase over the previous year, according to De Beers research.

 

2 - It must be recalled that throughout 2002, DTC's rough selling prices were substantially higher than those of the outside ("open market") goods. As a privileged group of customers, the DTC sightholders earned considerably smaller margins on the processing of DTC goods than on supplementary rough purchased on the open market. The rough placing power of De Beers was enhanced by the sightholders' eagerness to "please" the rough supplier and to position themselves well before the final selection of clients in context of the Supplier of Choice marketing system.

 

3 - Rio Tinto's Annual Report 2002 aggregates its income from gold and diamonds and it is difficult to get a precise handle on revenues. All diamonds came from its AK1 pipe; no alluvials were mined. In 2002, its Merlin Mine was closed. In 2002 it will make a decision whether to go underground at Argyle or to close the mine in 2007. In 2003, Rio will receive 60% of Canada's Diavik output.

 

4 - It is not that we don't believe the De Beers Annual Review 2002, but after privatization the company is grouping "diamond stocks and other assets" and it is not clear how much is attributable to each.

 

5 - See: Managing Director's Review, in the De Beers Annual Report, page 36.

 

6 - Most statistics refer to India's fiscal year that runs from April to March. For consistency purposes, however, we have calculated the calendar year data.

 

7 - December 2002 rough imports of $0.74 billion were the equivalent of 16% of annual imports and almost triple normal import levels for that month. The back-and-forth enables balancing of books of accounts.

 

Click here to view the 2002 diamond pipeline