Consumer sales of diamond jewelry so far this year are stronger than in 2005, but the cutting and manufacturing sector is sluggish partly due to a De Beers price hike on rough diamonds in February, officials of the diamond giant said on Tuesday.

The first several sights -- sales of rough diamonds to De Beers selected clients -- have been lower than at the same time last year, Managing Director Gareth Penny told Reuters.

On the sales side, the first three sights have been a bit behind last year, he said in an interview in Botswana as the firm signed a new agreement with the government.

DTC boosted the price of the rough diamonds it sells by just under 2 percent in February and this may have weakened sentiment among cutters and jewelry makers, said Varda Shine, managing director of De Beers marketing arm, the Diamond Trading Company (DTC).

I think that price increase didn't help in relation to the cutting centers. While our decision was right when you look at the supply demand in the big picture ... because there is a kind of blip in the cutting centers at the moment, that didn't help sentiment.

Some jewelry makers were having liquidity problems after they extended long-term credit lines to grab larger shares of the market, but now were hurting as U.S. interest rates steadily marched higher, she added.

Among the people who are cutting and polishing and the jewelry manufacturers, we can say there's a slight bit of indigestion in the market.

Although further DTC price increases were not on the cards for the moment, this could change later in the year if jewelry makers start seeing the impact of a new marketing campaign, Shine said.

In June, when the U.S. industry starts buying the bulk of its jewelry at trade shows for the big Christmas season, the DTC is launching a new marketing campaign to promote journey jewelry, with a series of smaller to larger stones.

We're investing much more money than an average year in creating a lot of noise and a lot of demand for journey jewelry, and we believe that will in turn create excitement (in the cutting centers), she said.

Despite the sluggish pipeline, on the retail side, consumer demand has been buoyant, Shine said.

There's been good sales in the Chinese New Year, there's been good sales for Mother's Day and Valentines Day in the States, so on the consumer side, we're seeing demand continue to grow, she said.

It's between 3 and 5 percent above last year's figures, so that end of the pipeline is fantastic; it means that consumers are still excited and keen to buy diamond jewelry.

The DTC aims to boost retail sales of diamond jewelry by slightly more than world economic growth, and has announced a growth target of around 7 percent for 2006.

This was still feasible since traditionally around 40 percent of all diamond jewelry sales take place in the final couple of months of the year, Shine said.

Penny said diamond production for De Beers -- 45 percent owned by mining group Anglo American plc -- would probably be steady, in volume terms, at around last year's 49 million carats.

This year is probably not going to be very different. Our business plan is for about the same number. Obviously, we'd hope to outperform that a little bit, but I think it's more or less that kind of number.

Botswana Manufacturing