Wednesday, October 21, 2020

De Beers registers slump in rough diamond sales

De Beers has seen a slump in rough diamonds sales on the back of low demand in the year 2019 following mild growth in the last two years.

A report from the diamond giant producers, last week showed that, for the full year, rough diamond sales volumes were 8 percent lower at 30.9 million carats compared with 33.7 million carats in 2018.

According to the report, for the year 2019, the overall demand for rough diamonds was lower as a result of challenges in the midstream, with higher polished inventories and caution due to macro-economic uncertainty.

The global diamond crisis is still caught up in a recession that dates back to the 2015 downturn and was exacerbated by overproduction of rough diamonds in 2017, leading to higher inventory levels that generated a ripple effect through the supply chain.

Over the last two years, the rough diamonds markdown has be a reflection of a number of influences which included amongst others; weak final demand for diamond jewellery in the major markets-the USA and China; overstocking in the midstream diamond cutters and polishers; lack of profitability due to narrow margins between rough and polished prices; lack of bank liquidity in India to finance diamond stocks; and the continued downward pressure on prices of lower-value diamonds due to competition from supplies of lab-grown diamonds.

Worries about the U.S.-China trade tariff wars have contributed to heightened volatility in global markets with investors adjusting their positions in anticipation of the projected slowdown in economic growth and company earnings in the financial year 2020.

Looking at the latest figures from the report, on the last (4th) quarter of 2019, DeBeers has realized a 15 percent decline driven by lower production levels in Botswana and South Africa. While trading conditions had improved since Q3 2019, production was reduced in response to softer rough diamond demand conditions experienced in the year.

It showed that, “Botswana production decreased by 7 percent to 5.9 million carats from 6.3million carats in the same quarter of 2018. Orapa production decreased by 29percent, caused by a delay in an infrastructure project and expected lower grades. This was partially offset by a 21percent increase at Jwaneng driven by planned increases in both tonnes treated and grade.”  

In other jurisdictions that DeBeers operates, Namibian production decreased by 10 percent to 0.5 million carats, driven by Debmarine Namibia where production decreased by 9percent to 0.4 million carats due to routine vessel maintenance in Q4 2019.

In South Africa, production decreased by 65percent to 0.4 million carats due to lower volumes of ore mined at Venetia as it approaches the transition from open pit to underground. In addition, Voorspoed production ended in Q4 2018 when it was placed onto care and maintenance in preparation for closure.

Production in Canada decreased by 3percent to 1.0 million carats, primarily due to the closure of Victor, which reached the end of its life in Q2 2019. Gahcho Kué production increased by 28percent to 1.0 million carats due to strong plant performance.

Rough diamond sales totaled 7.0 million carats from two sales cycles, which compares with 9.9 million carats of sales from three sales cycles in Q4 2018.

The full year consolidated average realised price of $137/ct was lower (2018: $171/ct), due primarily to a higher proportion of lower value rough diamonds sold in 2019 and a 6 percent lower rough diamond price index.

Mark Cutifani, Chief Executive of Anglo American, has since said the company delivered its full year production targets across the business.

Moving ahead, production guidance for 2020 is unchanged at 32-34 million carats, subject to trading conditions. The higher production anticipates an improvement in trading conditions compared with 2019, and is driven by an expected increase in production from the company’s operations at Venetia.

Meanwhile, figures from Statistics Botswana have shown that real GDP grew by 3.1 percent in the third quarter of 2019 (Q3 2019), which was a similar rate compared to the second quarter. The growth was constrained by both mining and non-mining sectors. Efforts to diversify the economy away from the diamonds revenue reliance remain key for the landlocked Botswana.

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