De Beers warns that weak rupee may take sparkle out of diamond sales
The world’s largest source of rough diamonds by value is on track to match or beat the full-year sales for 2017 but much rides on India.
The latest rough diamond sales from De Beers, the world’s largest source of rough diamonds by value, put it on track to match or beat the full-year sales for 2017, but weakness in the rupee could derail sales.
De Beers, which is 85%-owned by Anglo American, said it had achieved sales of $475m for the eighth of 10 annual sales during the month to October 12. De Beers holds large four-day sales events in the Botswana capital of Gaborone called sights, but it does sell diamonds between those events.
In the seventh sales cycle of 2018, De Beers recorded revenue of $503m.
"Although down on the last sale, this is in line with seasonal trends and importantly avoided the dip from last year," said RBC Capital Markets analyst Tyler Broda, adding that it was likely De Beers had sold some of the diamonds it had deferred in the previous sales window during the October period.
"There is likely an element that De Beers pushed through some of the deferrals from last sale though which has smoothed the results," he said.
De Beers notched up sales of $376m and $494m in the eighth sales cycles of 2017 and 2016 respectively.
The latest sales bring the running total for 2018 to $4.4bn compared with $4.39bn at the same time a year earlier and $4.69bn in 2016. Broda described the performance so far this year as "a fairly resilient performance considering the pressures mentioned in the [De Beers] release around the impact from a weaker Indian rupee on the value chain."
In a single sentence accompanying the sales numbers, De Beers CEO Bruce Cleaver had flagged the Indian currency as a problem for the company.
“While the rupee-dollar exchange rate has impacted demand for lower value categories, we continue to see steady overall demand for De Beers Group rough diamonds, reflecting ongoing consumer demand for diamond jewellery in the US,” said Cleaver.
Indian diamond buyers generally buy the smaller, lower-value diamonds De Beers produces. Reports from India noted that a rising oil price, exodus of foreign funds from the sub-continent and concerns around the country’s current account deficit have served to weaken the rupee against the dollar.
A weaker rupee would make buying diamonds, which are sold in dollars, more expensive.
The US market is the world’s largest market for diamond jewellery and the months leading up to Christmas are generally the period of big demand for diamonds.
"With production in the diamond space likely to fall in aggregate over the next couple of years, we continue to see the potential for a slight increase in diamond prices over the coming year," Broda said.
De Beers has forecast its 2018 production to be in the range of 34-million to 36-million carats, a level last seen a decade ago.