Thursday, July 9, 2020

Diamond sales hint at recovery

The diamond mining behemoth De Beers is sitting tight as the first rough diamond sale cycle of the year offers glint of hope for the year ahead. However, it will not be unbridled hope as memories of last year’s torrid trades are still clear, and the company knows very well how quickly the tide can turn.

De Beers, which holds ten sales cycles in a year in Gaborone, says provisional rough diamond sales have showed remarkable improvement, and could mark an end to the diamond industry crisis that have affected producers, cutters and polishers. On Wednesday, De Beers said the first sale of the year fetched $545 million. The January sale is typically one of the largest of the year as the industry replenishes their stocks following the holiday season

The cycle, also known as sight, marks the largest sale since April last year – Cycle 3 2019 – and outpaced the January sight of 2019, which earned $500 million, as well as the final sight of 2019, which earned $426 million. However, De Beers knows very well that the excitement can be short-lived, and the numbers do not tell the full story.

The 2019’s first sight was lower by the usual standards because De Beers had allowed its selected sightholders, representing some of the world’s top buying contingent, to defer buying some rough stones packages until the last sale of 2018, and this meant a lower figure when the first trade of 2019 took place. From there on, for much of last year, De Beers’ other sales cycles recorded lower sales value, declining with each passing sight, and only improved in the December trade.

The Anglo-American majority owned diamond mining outfit – which is also 15 percent owned by Botswana government – ended 2019 with all its ten-sales cycle delivering $4.04 billion, which was lower than 2018’s $5.39 billion and 2017’s $5.31 billion.

Now with 2020’s first sale showing a nine percent growth, there is still some fear that perhaps the slight tick in sales is a fluke, and analysts will be watching closely if there is sustained resurgence. Still, De Beers feels recovery is in sight, considering that the last sale of 2019 also showed improvement in demand.

“Demand for rough diamonds increased during the first Sight of 2020 following the end of year selling season and subsequent inventory restocking,” said Bruce Cleaver, CEO, De Beers Group.

The recovery in the diamond industry will bode well for Botswana, which relies mostly on diamond revenues, and will relieve the pressures caused by last year’s downturn. The country’s economy in the prior year faltered as the result of widening trade deficits caused by lower diamond exports. As things are, Botswana’s share of revenues from diamonds could have fallen by over 25 percent, and this complicates the already projected gigger budget deficits.

Botswana’s Finance ministry has since revised the projected deficit for 2019/2020 to come at a whooping P7.7 billion, while the shortfall for 2020/2021 is projected at P6.9 billion and another deficit has been set for P4.4 billion in 2021/22.

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Sunday Standard July 5 – 11

Digital copy of Sunday Standard issue of July 5 - 11, 2020.