In absolute terms the sales which the company effects through its Central Selling Organisation (CSO) plummeted in 1998 by 28 per cent to US $ 3345 million from US $4640 million in the preceding year. This shows that the industry had to pass though a difficult year.

The lower income from sales of rough gem diamonds in the first half of 1998 had according to De Beers a negative impact on its headline earnings which were consequently down 33 per cent in dollar terms at the half-year level. The low level of sales in the second half is expected to impact the results for the current financial year. The low level of sales in the second half is expected to impact the results for the current financial year to December 1998. The company is expected to release its working results in March 1999 by which time sales during the Christmas season will be knownand prospects for 1999 will be clearer.

De Beers owns some diamond mines wholly or jointly with others. It also buys from the open market or other producers rough diamonds for re-sale through its single channel marketing system. It offers for sales, all its rough diamonds only to its recognised buyers who are known in the trade as "sight-holders". Only they are allowed to participate in CSO sales which take place 10 times a year. Its sales are made on the basis of payments in advance.

Trading conditions remained very difficult in 1998. De Beers had expectations that its second-half sales would be higher than those in the first half. These hopes failed to materialise as a result of the global economic uncertainties in August and September 1998 and increasing problems of liquidity in the cutting centres.

In view of accumulation of stocks in the pipeline and complaints about falling profitability of the manufacturing sector, the CSO followed the policy of restricting the supply of rough gem diamonds to themanufacturing centres to a level consistent with the demand. This led to some reduction in the level of rough and polished diamond stocks in various centres.

This policy was well received by the trade. However bank borrowings by the trade remained high, with the competition for sales, particularly in the United States, leading to demands for lengthening terms of credit.

There have been good sales of diamond jewellery in the USA and to a lesser extent in Europe, but they have been insufficient to compensate for lower sales in Japan and East Asia. Retail sales in the United States during the first half of 1998 were about seven per cent higher than in the previous year. Early indications are that sales during the important Christmas season will also be more than in the earlier year.

However retail demand in Japan, the second largest market, has been some 20 per cent below 1997 in dollar terms. Likewise, imports of polished stones by Hong Kong have been running at about 40 per cent below 1997levels.

While confidence through out the diamond industry remains fragile, the CSO proposes to continue to hold back sales of rough gem diamonds. The prospect of increasing sales of rough diamonds to the level of consumer demand will depend both on a return of confidence in the trade and on diamond jewellery sales continuing at least at the present levels.

The table shows the sales of roughs by the company in the last 10 years.