Monday, January 24, 2022

Debswana jittery on possible U.S debt default

Debswana is watching with keen interest the developments in the United States as stalemate between President Barack Obama and House Republican leaders over economic shutdown and increase in debt ceiling drags on.

The U.S is a major consumer of Botswana diamonds (about 45 percent) and any developments in the world largest economy affects diamond sales.

Jim Gowans, Managing Director of Debswana said at De Beers’ level a question was asked on what impact the stalemate and a possibility of U.S not able to increase its debt ceiling will have on demand.

“It is a bit early to talk about that (impact of U.S default on debt),” Gowans said. “A lot depends on what happens between now and traditional sales season (November Thanksgiving)”.

Gowans said that is when “we will start to worry’ about the market after this period. The U.S lawmakers are in a stalemate over a failure to pass a legislation that sanctioned the funding of government operations, which forced a shutdown that came with furloughs or unpaid leave to many American civil servants.

The shutdown is seen as minimal, but a major blow to the global economy could be on the offing if lawmakers fail to raise U.S debt ceiling to avoid a default.

Bloomberg said without an increase to the debt limit, the U.S. will exhaust its borrowing authority on Oct. 17 and would run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

“A partial federal government shutdown lasting through the end of this week would pare 0.2 percentage point from U.S. economic growth and cost as much as 0.5 point if it continues another two weeks, according to the median estimate in a Bloomberg survey of economists taken Oct. 4-9,” Bloomberg said on Friday.

If the U.S economy slows it will be followed by fall in demand for gifts during ThanksgivingÔÇöwhich is major holiday in America where diamonds change hands.

This could have an impact on diamond sales and force Debswana to revise production targets at a time when the diamond mining company was forced to scale down output in 2012. The company recovered 20, 22 million carats last year compared to 22, 89 million in 2011.
Debswana blamed the reduced carat yield partly due on ‘ore grade challenges in the treatment plants’ and to delays in production due to a slope failure at Jwaneng mine in June 2012.
Botswana Diamonds (BOD), the BSE/ LSE listed exploration company said although in 2012 diamond prices remained, in relative terms, at historically high levels, H2 2012 was precarious for the diamond market and a difficult trading period for diamond players.

“Unlike in 2011, when prices rose dramatically by up to 50 percent between January and August, followed by a sharp drop in September, the prices of rough diamonds struggled throughout 2012,” it said.

The sharp decline was attributed to a declining marginal demand coming from the key emerging consumer markets of China and India, the impact of the weak US economy and the financial crisis in the Euro zone, the devaluation of the Indian rupee and the pricing policy of the main producers, DTC and Alrosa, remaining firm despite tightening liquidity and margins for their clients.


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