Thursday, April 9, 2020

De Beers weathers the rough diamond storm

Diamond mining giant De Beers ended 2019 with a flicker of hope after a slight uptick in rough diamond sales in what has been the company’s most challenging year since the 2008 financial crises, resulting production cuts amid decreased revenue from rough diamond sales.

Last week, De Beers reported that the provisional value of rough diamond sales in for the tenth and last sight of the year came at about $425 million, up 6 percent from the previous ninth sales cycle, but down 22.9 percent from 2018’s corresponding period. The tenth sales cycle was another slight improvement which started in the ninth cycle after almost recording decreases in other sales cycles through 2019.

The mining company which holds ten global sightholder sales and Auction Sales every year in Gaborone, with the sights or auction sales restricted to its selected sightholders has so far in the ten sights of the year sold rough diamonds valued at $4 billion – which is lower than $5.4 billion in 2018, and the $5.3 billion fetched in 2017.

The fall in sales forced De Beers to go against its tradition of offering non-negotiable diamond packages to its sightholders, this time around offering more flexibility to its customers by allowing them to reject some purchases. Last month, De Beers cut prices across the board by about 5 percent.

De Beers has lowered its production guidance for the next two years following challenges in the diamond industry which is still mired in a recession that has its roots in 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.

After cutting 2019’s diamond production to 31 million carats from earlier estimates of 33 million carats,  De Beers’ parent company Anglo American last month announced further downwards revisions, disclosing that diamond output in 2020 will be between 32 million and 34 million carats, lower than the initial target of 33 million to 35 million carats. The forecast for 2021 was also downgraded from the output target of 35 million to 37 million carats, with the mining giant now forecasting between 34 million and 36 million carats in production. The forecast output for 2022 has been pegged at between 33 million and 35 million carats.

The diamond industry’s first and strongest opportunity to rebalance and regain growth will be 2021, subject to the industry clearing its excess inventory in the beginning of 2020. However, industry experts have advised that ongoing supply–demand inequality will prevent full recovery of the industry in 2020, and challenges may be exacerbated by a continuing decrease in available financing for midstream players.

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