Sunday, September 27, 2020

Ripple effects in the diamond trade

The ripple effects being felt in the diamond industry is in full effect. Diamond production is down, inventories are swelling with diamonds that are not selling as coronavirus measures restrict movements, and the falling prices have done little to stimulate demand, complicating recovery for diamond producers like Botswana that are dependent on diamond sales. 

Data gleaned from Bank of Botswana reveals that Debswana produced 1.8 million carats of diamonds in the second quarter of 2020, a 68.1 percent plunge from the 5.7 million carats produced in the corresponding period in 2019. Production at Orapa and Jwaneng mines decreased by 72.5 percent and 64.7 percent, respectively, in the review period. 

The overall significant decline in production was mainly due to a nation-wide lockdown and the implementation of COVID-19 containment measures to safeguard the workforce. Similar containment measures in the buyer countries and the resultant limited midstream diamond cutting and polishing capacity, particularly in India, adversely affected the demand for rough diamonds.

The global rough diamond price index decreased by 8 percent from 137.8 points in the first quarter of 2020 to 126.6 points in the second quarter of 2020 as the spread of the COVID-19 virus and counter-pandemic measures implemented around the globe severely disrupted trade of diamonds and suppressed manufacturers’ demand for rough diamonds. 

“Moreover, the decline reflects the deteriorating consumer and investor sentiment, excess supply of smaller diamonds and underperformance in the Indian consumer market amid lockdown extensions in several provinces,” said the bank in its Monetary Policy report released on Friday. 

Besides rough diamonds, the global polished diamond price index also decreased by 1 percent from 209.7 in the first quarter of 2020 to 207.7 in the second quarter of 2020. In July 2020, the global polished price index averaged 204.2 points, lower than the 208.3 points in June. 

“The virus has had ripple effects on diamond supply chains due to the worldwide lockdown; thus, the prevailing weaker demand for diamond jewellery and liquidity constraints had an impact on sales of luxury goods, including diamond jewellery,” the bank said. 

De Beers’ revenue has fallen by more than half while profit also took a drastic nosedive. According to Anglo American’s financials for the six months ended June 2020, total revenue decreased by 54 percent to $1.2 billion, down from last year’s  $2.6 billion in the corresponding period. The more than half decline was due to rough diamond sales falling to $1.0 billion, compared to June 2019’s $2.3 billion sales. Rough diamond sales volumes decreased by 45 percent to 8.5 million carats after the significant impact of Covid-19 on the global diamond industry.

Anglo American owns 85 percent of De Beers while the Botswana government has a 15 percent stake. De Beers and Botswana are in one of the world’s longest lucrative public private partnerships, where they hold equal shares in Debswana, which operates the best diamond mines in the country. Every year, De Beers holds sales cycles or sights in Gaborone, where diamonds from Botswana and its other mines from South Africa, Namibia and Canada are sold to selected diamond buyers known as sightholders. 

But with the outbreak of the deadly virus earlier this year, De Beers offered Sightholders the option to defer up to 100 percent of their allocations at the fourth and fifth Sights and held some viewings for Sight 5 outside of Botswana, following the cancellation of the third Sight of 2020 due to Covid-19 related travel restrictions. The average realised price decreased by 21 percent to $119/carat, down from last year’s $151/carat, driven by a higher proportion of lower value rough diamonds being sold in the first two Sights of the year and an 8 percent decline in the average rough price index.

The diamond miner has since launched an e-commerce site that provides registered buyers an alternative way of purchasing rough diamonds in addition to the company’s existing limited-time auctions, thus creating an opportunity for sales during the weak market. Customers would be able to buy 10 percent of De Beers’ rough diamonds immediately and at any time of the day, with the available goods ranging from very high end to low end items, with prices visible to customers at the point of purchase.

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Sunday Standard September 27 – 3 October

Digital copy of Sunday Standard issue of September 27 - 3 October, 2020.