De Beers final diamond sale of the year gives some hope to depressed market

Rough uncut diamonds. Image by De Beers.

Anglo American’s De Beers, the world’s No.1 diamond miner by value, said on Wednesday that its last roughs sale of the year fetched $425 million, a slight improvement from the $400 million it obtained in the previous tender, but still over the year a whopping $1.4 billion less than in 2018.

The figure is also 20% lower than the $544 million worth of diamonds the miner sold in December last year, and it has brought the company’s total sales for 2019 to only $4 billion.

DIAMOND GIANT SALES TOTALLED $4 BILLION THIS YEAR, A WHOPPING $1.4 BILLION LESS THAN IN 2018

The diamond giant sells its stones ten times a year in Botswana’s capital, Gaborone. The buyers, or “sightholders,” usually accept the price and the quantities offered, but in the past months they’ve been given more decision making power, with De Beers allowing them to refuse about 50% of the stones contained in the parcels.

The company has also curbed plans to expand diamond production over the next two years and reduced prices for low-quality stones as much as 10%, in yet another sign of increasing volatility at the bottom end of the market.

Cheaper diamonds, which are often small and low quality, have been selling for significantly less now than six years ago due to an unforeseen oversupply that has weighed on prices and producers’ bottom lines.

The situation, some key actors say, is about to change, as the first signs of stabilization in the sector are starting to appear.

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Source Bain & Company.

“Following continued polished diamond price stability in the lead up to the final sales cycle of the year, we saw further signs of steady demand for rough diamonds during Sight 10,” De Beers chief executive officer, Bruce Cleaver, said in the statement.

His perception is shared by Russian competitor Alrosa (MCX:ALRS), which last week said it had “evidence” that prices for a variety of diamond products edged higher in October and November. The world’s top diamond producer by output  also noted that prospects for de-stocking were “more visible.”

Source Bain & Company.

Industry consultant Bain & Co., however, believes that while the glut that’s depressing the diamond market will probably be cleared early next year, it will take at least another 12 months for the market to fully recover.

“The industry’s first and strongest opportunity to rebalance and regain growth will be 2021,” said Bain in a report, adding that supply could fall 8% that year. 

Source: mining.com

Higher Costs Hit De Beers Profit

De Beers Venetia Mine

De Beers’ earnings fell in 2018 due to the costs of new initiatives such as its Lightbox synthetics business.

Underlying earnings slid 34% to $349 million, as capital expenditure rose 53% to $417 million for the year, the company reported Thursday. That included outlays related to the launch of De Beers’ lab-grown jewelry brand, as well as its Tracr blockchain program, and Gemfair, which aims to help artisanal miners. It also spent more on marketing, exploration and evaluation in Canada.

Volatile conditions also negatively affected margins in De Beers’ trading unit, it added. Consumer demand for diamond jewelry was strong in the first half, but faltered from July onward amid political uncertainty, unstable stock markets, and the US-China tariff dispute. Manufacturers bought less rough as a result.

“In the second half, the low-priced-product segment came under considerable pressure due to weak demand and surplus availability, the rapid depreciation of the rupee, and a reduction in bank financing in the midstream,” De Beers explained.

Revenue still increased 4% to $6.08 billion for the year, driven by strong consumer demand in the first half, with prices growing 1% on a like-for-like basis. Sales of rough diamonds grew 4% to $5.4 billion, while the average selling price climbed 6% to $171 per carat, reflecting lower sales of cheaper goods in the second half. Sales volumes dropped 4% to 33.7 million carats.

De Beers noted an improvement in sales at De Beers Jewellers, its high-end consumer chain. Revenue from Element Six, its industrial-diamond subsidiary, dropped 5% due to lower sales to the oil-and-gas market.

The company expects some of the group-wide challenges to continue this year.

“The outlook for 2019 global diamond-jewelry consumer demand faces a number of headwinds, including the risk of a potential intensification of US-China trade tensions, the Chinese government’s ability to rebalance economic growth towards consumption, and further exchange-rate volatility,” it said.

De Beers maintained its production forecast of 31 million to 33 million carats for this year, down from 35.3 million carats in 2018. However, profitability could suffer as output from its wholly owned Venetia mine in South Africa enters a lull this year amid a transition from open-pit to underground mining. A larger proportion of production will, therefore, come from mines in Botswana and Namibia that it operates in joint ventures with governments. Those businesses generate lower margins than it receives from deposits it owns completely.

Source: Diamonds.net