De Beers sees "challenging" 2008 for diamond sector

By Steven Scheer

TEL AVIV, Feb 11 (Reuters) - De Beers, the world's top diamond producer, said on Monday that 2008 looks to be a "challenging" year for the industry due to a slowdown in the global economy that could dampen demand for diamonds.

But Gareth Penny, De Beers' managing director, said rough diamond prices are still rising due to lack of new supply.

"It is going to be a challenging year but we want to grow, We are working for growth," Penny said at a rough diamond conference in Tel Aviv. "It is well within our capability to deal with the challenges."

He noted that rough diamond prices have risen an average of 7.5 percent since the second half of 2007 but market forces would determine how much prices would increase this year. However, Penny said he was bothered by heavy diamond discounting by stores prior to the last holiday season.

While the economy around the world slows, diamonds have stiff competition as gifts from items such as Ipods and video game machines, he said, adding that high oil prices and electricity problems in South Africa were also hurting the sector.

De Beers, 45 percent owned by Anglo American Plc (AAL.L: Quote, Profile, Research), has a 40 percent market share.

Penny appealed to rival producers to join forces in marketing and retailing of diamonds, saying De Beers can no longer be the lone voice of the industry.

In his speech, he called on the industry to make some changes and brought up the notion of stopping the trading of diamonds in dollars due to the U.S. currency's weakness. But he later told Reuters that he was not serious.