De Beers Group

De Beers Profit Falls Amid Market Slump

Rough diamond sorting Kimberley South Africa

De Beers’ profit dropped in the first half of the year as weak demand at the trade and consumer levels impacted diamond prices, the company said Thursday.

The rough market was subdued due to high inventories in both the midstream and the retail sector, as well as a slowdown in growth of consumer demand, the miner explained. The US-China tariff dispute, protests in Hong Kong and the strong US dollar hit retail performances outside the US, especially in China and the Gulf region. In the US, retailers’ store closures and reduction of stocks weighed on polished demand, creating a further negative effect for the rough business, De Beers added.

Earnings before interest, taxes, depreciation and amortization (EBITDA) slumped 27% to $518 million as a result of the impact on margins, the miner reported. Total underlying earnings fell 7% to $187 million. Revenue slid 17% to $2.65 billion, with rough-diamond sales decreasing 21% to $2.3 billion. Other revenues came from businesses such as Element Six, its industrial-diamond unit, and De Beers Jewellers, its high-end retail chain.

“The lower rough-diamond sales reflected higher-than-expected polished stocks at retailers and the midstream at the beginning of 2019, with overall midstream inventory levels continuing to be high throughout the first half,” De Beers noted.

De Beers’ rough-price index, measuring prices on a like-for-like basis, fell 4% for the period versus a year earlier. The average selling price declined 7% to $151 per carat, influenced by a change in the sales mix caused by the weaker conditions.

The company expects those challenges to continue in the short term, but also foresees an improvement as the industry reduces its inventory and consumer demand rises.

“Underlying GDP [gross domestic product] growth remains supportive of consumer-demand growth, and is expected to bring midstream and retailer stocks back to more normalized levels as we move into 2020, subject to an improving macroeconomic environment,” De Beers said.

Last week, De Beers reduced its production outlook following low demand, forecasting output of 31 million carats this year, whereas it had previously expected to recover 31 million to 33 million carats. Production fell 11% to 15.6 million carats during the first half, as the company chose not to increase mining levels at other deposits to compensate for a lull at the Venetia mine. Output at the site in South Africa has fallen amid its transition from open-pit to underground operations.

Source: diamonds.net

Brewing Diamond Industry Crisis Prompts De Beers to Cut Output

De Beers trimmed its production plans for this year as the world’s biggest diamond producer responds to a brewing industry crisis that’s hitting demand for its stones.

The Anglo American Plc unit will now mine about 31 million carats in 2019, at the bottom end of a previous forecast range. The company, once the monopoly supplier of diamonds, has a longstanding strategy to match supply with demand.

The diamond industry’s engine room, dominated by family-run businesses that cut, polish and trade the stones, is struggling to make money amid a flood of polished diamonds and stagnant consumer purchasing. That’s led to a slump in demand for the rough stones that De Beers mines from Botswana to Canada.

De Beers Diamond Sales Keep Dropping as Weak Patch Drags on

The weakness is showing up in the company’s sales, which are down about $500 million so far this year compared with 2018. The company has already gone unusually far in offering flexibility for its customers — allowing them to defer agreed purchases and lower the number of diamonds they plan to buy this year.

De Beers had already planned to produce a lot less diamonds than last year, when it dug up more than 35 million carats, the most since the global financial crisis. First-half output of the stones was 15.6 million carats, 11% lower than in 2018. The average selling price also fell 7%.

“Demand for rough diamonds remains subdued as a result of challenges in the midstream, with higher polished inventories, and caution due to macro-economic uncertainty, including the U.S.- China trade tensions,” Anglo said Thursday.

Macquarie Group Ltd. said before today’s announcement that it expects De Beers to post first-half profit of $567 million. While that’s down on last year, it’s performing far better than its smaller rivals, many of whom have seen their market values plummet to multi-year lows.

Source: bloomberg

De Beers’ recent diamonds sale the worst in two years

Anglo American’s De Beers, the world’s No.1 diamond miner by value, has just had the lowest sales for its seventh cycle since it began releasing data in 2016, as it let customers delay acquiring smaller stones for the first time.

Sales for the cycle stood at a provisional $505 million, down 5.5% from the $533 million obtained in the previous cycle of the year and 0.4% from $507 million for same period in 2017.

“De Beers Group provided Sightholders with the opportunity to re-phase the allocation of some smaller, lower value rough diamonds.” chief executive officer, Bruce Cleaver, acknowledged in the statement.

The unusual move (De Beers is known for requiring buyers to take what’s offered) says lots about the state of the low-end diamond market. The last time the company did something similar, in fact, was two years ago, when India’s move to ban high-value currency notes pushed down demand.

Sales were down $134 million or 21% compared to the same cycle in 2016, when De Beers began releasing this kind of data.The diamond giant has about 80 handpicked clients called sightholders who are allocated parcels of diamonds sorted and aggregated in Gaborone. The 10 annual sales events are known as sights.

De Beers’ new strategy for small stones, paired with its looming entry into the lab-grown stones market, have many in the industry worrying about prices.

Cheaper diamonds, which are often small and low quality, are selling for a lot less now than five years ago. And when it comes to synthetic stones, De Beers’ entry in the market will create a big price gap between mined and lab diamonds, pressuring rivals that specialize in synthesized stones at the same time.

A 1-carat man-made diamond sells for about $4,000 and a similar natural diamond fetches roughly $8,000. De Beers new lab diamonds will sell for about $800 a carat. That’s a fifth of the price of existing man-made stones and one-tenth of the cost of buying a similar natural gem.

No wonder competitors are worried. The lab-grown industry has filed a complaint with the U.S. Federal Trade Commission, accusing De Beers of price dumping and predatory pricing.

Low sales, stable demand

In 2016, De Beers recorded sales of $639 million for the seventh of its tenth annual sales events. That is $134 million or 21% more than what it just made after letting buyers reject small, low-quality stones. That means that, to date, 2018 is shaping to be the worst in terms of sales for the Beers in the past two years, with combined sales of $3.93 billion against the previous year’s $4 billion and 2016’s sales of $4.12 billion.

The dip is sales comes despite demand has remained stable ahead of the Hong Kong Jewellery & Gem Fair, at least according to what Cleaver said. The exhibit, which takes place from Friday this week to Tuesday next week, last year reportedly attracted 3,695 exhibitors and 59,122 buyers.

Source: mining.com