De Beers plans to raise diamond prices 5 per cent every year, betting demand will help the world's biggest miner of the precious stones meet parent Anglo American's target for returns.
"We know the long-term trend, we know demand is going to be bigger than supply," chief executive officer Philippe Mellier said.
“One of the objectives is more stable prices and to drive volatility out.”
Rough diamond prices gained about 10 per cent this year after more than doubling in the past five as the US economy recovered from the global financial crisis and China’s burgeoning middle class bought more of the gems.
Anglo American, which owns 85 per cent of De Beers, wants its units to deliver a 15 per cent return on capital by 2016.
“We have a plan to get there,” Mr Mellier said, adding De Beers returned 10 per cent on capital last year.
“My team is very focused. It’s our one objective, the objective.”
Diamonds made up about 19 per cent of Anglo American’s $33 billion sales last year.
Anglo American CEO Mark Cutifani, who replaced Cynthia Carroll last year, is reviewing projects from Australia to Brazil in pursuit of savings and cash-flow gains. De Beers predicts global diamond demand will grow 4 per cent to 4.5 per cent this year.
The US market, which accounts for about 37 per cent, is forecast to gain in “high single digits” in 2014, while there is “good momentum” in the Chinese market, Mr Mellier said.
He also expects a revival in India this year after a collapse in the rupee dented sales in 2013.
The country’s share of global demand should increase to 10 per cent from about 8 per cent last year, Mr Mellier said.
De Beers has already raised prices 5 per cent and further increases are unlikely this year, he said.
That would provide comfort to banks that finance De Beers’ customers.
Antwerp Diamond Bank, one of the leading lenders to the industry, said last month it was cutting advances to clients after diamond producers pushed up prices too far.
Bloomberg
