De Beers Plans 5% Annual Price Increase to Meet Anglo Returns Target

Anglo American’s revenue produced from diamonds comprised approximately 19 percent of their $33 billion total sales in 2013. Anglo owns 85 percent of De Beers, which means they have significant reason behind their new push for even greater returns. Anglo has set the goal for its unit returns on capital at 15 percent by 2016. This has led De Beers’ plans for an annual increase of five percent.

This five percent annual increase decided upon by De Beers represents an evenly graduated increase over the next three years. The company is banking on this graduated increase matching growing demand in the marketplace, creating an essentially seamless increase in prices. Some would even say it’s an increase that may potentially go unnoticed by customers over the long haul. With that, De Beers is not forecasting any additional increases for this current year beyond the five percent it’s already risen.

The U.S. economy’s recovery from the global financial crisis and China’s growing middle class have been attributed as the leading causes for the price more than doubling in the past five years. Rough diamond prices increased by approximately 10 percent this year. “We know the long-term trend, we know demand is going to be bigger than supply. One of the objectives is more stable prices and to drive volatility out. We have a plan to get there. My team is very focused. It’s our one objective, the objective,” says Chief Executive Officer Philippe Mellier.

It’s not just an increase in U.S. demand that will help De Beers drive its price increase. Having suffered a setback in sales in 2013 due to the fall of India’s rupee, De Beers does foresee a rejuvenated India providing a global demand increase of two percent, climbing to 10 percent.