Thursday, December 3, 2020

Diamond sales get a bump

Diamond mining juggernaut De Beers is mounting a strong come back after posting its highest rough diamond sales  since January when the company’s hopes of a recovery were stalled by the Covid-19 outbreak.

De Beers has reported $467 million in rough diamonds sold for the eighth sales cycle of 2020, up by 40 percent from the previous cycle and 57 percent higher than 2019’s corresponding sales cycle. This is the second biggest sale of the year after the first sales cycle in January netted in $551 million, prompting De Beers to believe that recovery was around the corner after a sluggish 2019. However, coronavirus outbreak in late January threw everything in a tailspin, disrupting global diamond supply chains.

The iconic diamond mining company holds ten Global Sightholder Sales and Auction Sales every year in Gaborone and the sights or auction sales are restricted to its top 80 Sightholders who buy the diamond packages at a price determined by De Beers.

De Beers added that the provisional rough diamond sales figure quoted for cycle eight represents the expected sales value for the period 21 September to 9 October and remains subject to adjustment based on final completed sales. The actual sales figure will be likely higher as De Beers is fond of understating its provisional sales. The seventh sales circle’s provisional figure was pegged at $320 million, but the actual sales figure was later corrected to $334 million.

The diamond miner had to make concessions this year, which included cancelling the third sales cycle, and temporarily moving away its sights from Gaborone, and later combined the fourth and fifth cycles together, but even then, sales were still lower by any standards. Things seemed to improve from the sixth sight after De Beers implemented a more flexible approach to rough diamond sales for the remaining sales cycle of 2020, with the sight event extended beyond its normal week-long duration.

“We continue to see a steady improvement in demand for rough diamonds in the eighth sales cycle of the year, with cutters and polishers increasing their purchases as retail orders come through ahead of the key holiday season. It’s encouraging to see these demand trends, but these are still early days and there is a long way to go before we can be sure of a sustained recovery in trading conditions,” said De Beers’ chief executive officer Bruce Cleaver.

Though it had appeared that 2020 might be a year when the diamond industry recovers from a recession that started in 2017, the year will likely be the worst for De Beers since it started publicly publishing its diamond sales in 2016. With only two sale cycles left, the company has so far sold $1.87 billion of rough diamonds and will certainly be lower than the $4 billion earned from the ten sales sights in 2019, and much lower than $5.39 billion in 2018 and $5.31 billion in 2017. De Beers’ rough diamond sales are yet to top the $5.6 billion reached in 2016.

The slump in the diamond industry has been felt in Botswana, which supplies De Beers with over 75 percent of rough diamonds. With a narrow economic base heavily reliant on diamond exports, Botswana has projected weaker economic growth for the year, while budget shortfalls and trade deficits are expected to linger for longer.

The Botswana economy officially entered into a recession during the second quarter of 2020 after posting its worst contraction since 2009. On a quarterly basis the real domestic gross product (GDP) fell by 24.8 percent and on a yearly basis, the GDP plunged by 24 percent. Both contractions reflect biggest fall on record since Botswana gained independence in 1966.

The economy is set to end the year with a contraction of 8.9 percent, steeper than the decline during 2008 financial crisis, when the economy shrunk by 7.6 percent, all in the back of a weaker diamond market. The economy’s dependence on diamond exports has been reflected through the country’s weakening fiscus which coincides with the slump in the diamond industry, affecting revenues, of which mineral revenues contribute over 50 percent to the country’s budget.

Botswana’s national budget for the 2020/21 financial year, which began in April, pegs government expenditure at P59.6 billion against projected revenues of P48.8 billion. The budget deficit from the current financial year is projected at P15 billion, ballooning from the P7.9 billion deficit registered in 2019/20 financial year, which was a slight reduction from 2018/2019’s massive P8.8 billion budget shortage.

The government has been running budget deficits since 2017/2018, with that year’s deficit recorded at P1.9 billion. The government’s cumulative budget deficits in the last three years is estimated at P22 billion, nearly 10 percent of the country’s 2019 GDP of P200 billion . Besides the projected P15 billion budget outrun in the current financial year, another shortfall of  more than P4.4 billion is expected in 2021/22 but will likely be revised too in the coming months.

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The Telegraph December 2

Digital edition of The Telegraph, December 2, 2020.