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Johannesburg - De Beers, the world's largest supplier of rough diamonds, warned demand for smaller, lower quality stones will remain poor, but offtake for the larger gems will remain strong in a year in which it expects to produce 50 million carats.
De Beers produced 51.1 million carats in the year to end-December 2007.
"Mass market retail diamond jewellery sales have been impacted by economic issues in the most important market, the United States," De Beers said in its interim results in which it posted a 10% increase in sales of $3.74bn.
"Sales growth was driven by higher prices," said Gareth Penny, managing director of De Beers.
Sound demand from clients buying from the Diamond Trading Company allowed De Beers to steadily increase prices.
"Our sales are well up this (half) year at 10% and hopefully they'll reflect that for the year as a whole," Penny said. "In our business we have seen further price rises in the second half, whether they will go up further from where they are we don't know."
Interim production fell by a million carats to 24.2 million, as De Beers sold a number of marginal assets and ramped up new projects.
"With new mines coming on stream and hopefully with demand continuing to rise ahead of supply, we feel we're in pretty good shape for next year," Penny said.
Strong growth in China, India, Russia and the Middle East had mitigated the impact of a slowdown in the United States, but the "overall retail market is likely to be challenging", said De Beers, which is 45% owned by Anglo American.
"While demand for high-end diamonds is likely to remain robust, the smaller, lower qualities, which are more dependent upon US demand, are expected to remain subdued," it said.
"In the current economic climate it would be imprudent not to be cautious about the second half of 2008," Penny said.
De Beers' underlying earnings were eight percent higher at $350m.
Production in South Africa came off by nearly 1.2 million carats. The diamond mines in Canada - Snap Lake and Victor - contributed for the first time, adding 616 000 carats for the period.
For more mining sector coverage, go to miningmx.com.
- Miningmx.com