De Beers restructuring will hit supply to Israel

De Beers plans to stop sales to companies with no sights.

Israels diamond industry is facing a new threat. The De Beers syndicate, which controls 45-50% of the worlds rough diamond production, will restructure its quota distrbution to the secondary market, carried out through subsidiary Diamdel.

Reducing supplies to the secondary market is expected to affect 500 producers worldwide, who will see sales fall by $400-600 million a year. De Beers plans to stop sales to companies with no sights. The damage to Israel is estimated at $200 million a year.

Diamond expert Chaim Even-Zohar told international diamond index Idex Online that the restructuring was inevitable. The writing has been on the wall for a long time.

The restructuring will include Diamdels office in Israel, which will reduced to one or two employees, and the closing of its offices in Hong Kong and Shanghai. Only a small staff of up to ten will remain at the Antwerp headquarters, who will collate market responses and check prices.

Even-Zohar said that the restructuring would not take place immediately, and that De Beers did not seek the collapse of the market or to harm its customers. De Beers managing director Gareth Penny and De Beers Diamond Trading Co. managing director Varda Shine said that no decision had yet been made, nor could it be made without the involvement of employees.

Even Zohar said that the restructuring would cause an earthquake in Israels diamond industry. Just last year, De Beers said it would transfer Diamdels sorting center to Israel; now it plans to reduce the companys Israel office.

The impact on Israel is considered massive, especially at a time when diamond mining companies have promised that a fifth to a quarter of production will be polished in the source countries in Africa, which will reduce the supply of rough diamonds to other parties. The De Beers restructuring will probably cause rough diamond prices to rise, which will strengthen the companys sight holders.

De Beers is apparently restructuring Diamdel because of its losses last year, and because rough diamond were sold to the secondary market for less than the price of diamonds that De Beers marketed to sight holders.

Idex Online also reports that M. Fabrikant & Sons, which filed for Chapter 11 bankruptcy protection in November 2006, is seeking a buyer to run the company as a going concern. The company told the US Bankruptcy Court that its minimum asking price was $48.5 million. According to the Chapter 11 filing, M. Fabrikant & Sons has $363 million in debts and $225.9 in assets.

Published by Globes [online], Israel business news - www.globes.co.il - on April 25, 2007

Copyright of Globes Publisher Itonut (1983) Ltd. 2007

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