Diamond inventories have fallen to levels justifying a ramp-up of diamond production with signs that the key Christmas sales season will be better this year than last, according to Gareth Penny, head of De Beers, Reuters reported.



Gareth Penny told a meeting of diamond dealers in Antwerp that rough diamond stocks were 20-30% down from mid-2008 peaks.



"There is clear evidence that rough (diamond) stocks have come down to reasonably acceptable levels... I am hearing that more rough needs to come into the system," he said, according to the report.



De Beers, 45% owned by mining conglomerate Anglo American PLC, slashed diamond production in the first quarter by 90% from the last three months of 2008 and by 91% year-on-year, the report said.



But the diamond group, which has 41% of the rough market, has hiked diamond output in the second quarter with the restart in April of the major Debswana diamond mines, which accounted for over 65% of De Beers production in 2008, it said.

Penny said mining at the Debswana sites in Botswana was now pushing above 80% of capacity.



Demand for polished diamonds has fallen by as much as 30% and for rough diamonds by as far as 60% from mid-2008 peaks, the report said.



However, De Beers believes that consumer demand for diamond jewelry is down a more modest 10-15% and has actually risen in China.



"This is not a 50-60% drop-off," Penny said.



De Beers noted that polished diamond prices had stabilized in March and April and believes diamond retailers should have worked through excess stocks by the first half.



"December, Christmas of 2009 will be better than December, Christmas of 2008. I think that's a pretty reasonable assumption from where we are sitting now," Penny said late on Wednesday. His comments were cleared for the media on Thursday, the report said.

"Stock markets are up, US confidence indices are improving. There are a number of drivers suggesting that."



For the dealers, the hottest topic was whether De Beers would be increasing prices at monthly sights. For them, a spread between rough and polished diamond prices is crucial, said the report.



Rough diamond prices fell by 30-70% from mid-year peaks in 2008, far more than the 20-30% decline of polished diamond prices, it said.

"We would expect similar levels of magnitude to polished diamonds. We will continue to be prudent so we will show moderation," Penny told the audience, but added prices must be "aligned."



De Beers chose Antwerp for its first 'town hall' meeting, given the Belgian city handles about 80% of all rough diamonds and over half of polished diamonds. It plans further meetings in Israel later this month and in Mumbai in July, the report said.