De Beers protects its diamond cut

DESPITE achieving record rough diamond sales in the first six months of this year, the De Beers- controlled Central Selling Organisation has decided against boosting quotas for producer countries.

Its caution comes as Russia, which supplies a quarter of the diamonds sold by the CSO, said no progress had been made in negotiations with De Beers over its five- year contract.

It comes also against a background of lower second-quarter sales as a build-up of smaller, poorer quality stones in cutting centres has forced the CSO to reduce diamonds on offer at its sales.

Production quotas will therefore remain at 85 per cent of their 1991 levels. In 1992 they were slashed to 75 per cent of their previous level as the market slumped. They have since been progressively lifted with improving sales. The CSO is responsible for marketing more than 80 per cent of the world's rough diamonds.

First-half sales were dollars 2.58bn ( pounds 1.72bn), compared with dollars 2.543bn. The first quarter was boosted by strong retail demand in America at Christmas which led to re-stocking.

De Beers refused to comment on its discussions with Russia, beyond saying the Russians had made it clear that they supported market stability. The two sides meet again next month.

The Russians, who signed a dollars 5bn five-year sales agreement with De Beers in 1990, want to increase the proportion of diamonds they can sell directly to the West, for 'market testing' purposes, from its current 5 per cent.

Yevgeny Bychkov, head of the Russian precious metals committee, said yesterday those sales realised prices 13-35 per cent higher than De Beers'. Sales of polished gem diamonds earned Russia dollars 680m last year, while rough diamonds brought in dollars 1.3bn.

However, the prospect of more direct sales carries the threat of Russia flooding the market and undermining the CSO's delicate manipulations.

(Photograph and graph omitted)