CSO relaxes diamond delivery quotas: Attempt to address imbalance in market

DIAMOND producers received a boost yesterday with the news that the giant Central Selling Organisation (CSO) is to relax slightly the quota system that has curtailed deliveries over the past eight months.

In an effort to redress the yawning global imbalance between supply and demand, the CSO has been taking delivery of diamonds up to only 75 per cent of a producer's output capacity since last September. From next month the figure will be increased to 80 per cent.

The CSO, controlled by De Beers of South Africa, handles more than 80 per cent of world uncut diamond sales.

It implemented the quota system because demand for diamonds was falling and the stockpile of stones that it uses to help to maintain prices was rising at an alarming rate. Its sales of diamonds in 1992 totalled dollars 3.4bn, down 13 per cent from the previous year.

Julian Ogilvie Thompson, De Beers' chairman, said yesterday that sales in the first three months of this year had been exceptionally good for the diamond industry.

In particular, the supply of illicitly mined Angolan diamonds which, together with the global economic downturn, had done much to depress the market last year, had substantially dried up because of the rainy season and the resumption of civil war in the country.

But he said other factors were also helping. Demand from the United States was rising, while Russian supplies of polished diamonds had been curtailed as a result of the imposition of a 20 per cent tax on exports, although this is being lifted. Demand for diamonds from India had also been strong after the rupee was made fully convertible.

These favourable factors meant that the balance between supply and demand in cutting centres was restored by February and enabled the CSO to implement a 1.5 per cent increase in diamond prices in February, its first rise since 1990.

Nevertheless the group expected demand to be weaker at its next few diamond sights (sales) and remained concerned about the market. Its stocks remain very high at dollars 3.8bn, up from dollars 3bn at the end of 1991.