Thursday, October 28, 2021

Diamond production rises but does not show any sparkle

Botswana recorded an increase in diamond production for the second quarter ended June 30, 2017 according to a production report from Anglo American but this rise doesn’t directly imply that it will add positive value to the economy.

This is because between production and demand is a complex set of processes that are needed so as to derive value from the rough diamonds. The increase in production does, however, indicate an improvement from what was observed since 2015 when rough diamond volumes depicted a downward trend.

“Debswana (Botswana) production increased by 14 percent to 5.9 million carats. Orapa’s production increased by 44 percent driven by the ramp-up of Plant 1 which was previously on partial care and maintenance in response to trading conditions in late 2015. This was marginally offset by Jwaneng where production decreased by 3 percent,” says the production report.

Moreover, production from Letlhakane also declined by 36 percent being the biggest counter to the addition made by Orapa. The fall in Letlhakane is in comparison to the corresponding period of the second quarter of 2016 a further slump as then it recorded a 22 percent decline. Overall though the report says that rough diamond production at De Beers increased by 36 percent to 8.7 million carats in line with the higher production forecast for 2017, reflecting stable trading conditions as well as the contribution from the ramp-up of Gahcho Ku├® in Canada.

It may be that production is increasing but it also appears that challenges still remain in the trading conditions particularly around diamond prices. In a previous interview with De Beers Chief Executive Officer Bruce Cleaver he expressed that “rough diamonds don’t sell themselves” which means that they have to be fed through various processes and changes until they can incite demand for their purchase. “Rough diamonds turn into polished diamonds, rough diamond prices are determined effectively only by polished set of diamond jewellery,” he had said.

In terms of sales volume from the rough diamonds the production report cites that the second quarter of 2017 from which two sights (De Beers sales events) were held registered 5.4 million carats compared to 9.6 million carats from three Sights that were done in the second quarter of 2016.

“Apart from the additional Sight in Q2 2016, the decrease was expected at strong levels of midstream restocking in H1 2016 (first half of 2016),” says the report.

Diamonds are of particular importance to Botswana because they make up a very large share of total exports at over 80 percent. This makes their contribution to the economy in terms of value addition a significant economic force. In terms of value addition Statistics Botswana in its first quarter Gross Domestic Product (GDP) report cited that “diamond value added decreased by 2.8 percent during the quarter under review because diamond prices continue to be vulnerable to market tremors hence a reduction in diamond production.”

In addition the latest monthly digest international merchandise trade report for April compiled by Statistics Botswana cites that “the total exports value for April 2017 compared to that of the same month in 2016 shows a decrease of 52.9 percent (P4, 271.2 million) from P8, 075.8 million to P3, 804.6 million. The decrease is mainly attributed to the drop in exports of diamonds, which fell by 51.3 percent (P3, 720.0 million) from P7, 251.1 million in April 2016 to P3, 531.1 million during the period under review.”

Statistics Botswana is yet to release the second quarter Gross Domestic Product (GDP) report which will indicate if the recent improvement in production translated in positive value addition to the economy.

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