De Beers rough diamond revenue slumps
The company’s revenue continues to slide as it reports $490m in its second sales event of the year
De Beers, the largest source of rough diamonds by value, reported the lowest level of rough diamond sales for February since it started releasing the data in 2016, achieving $490m.
De Beers, which is 85% owned by Anglo American, has 10 sales events a year, including the allocation of specific diamonds to about 80 hand-selected clients at events called sights in Gaborone, as well as auctions.
The $490m realised in the second sale of 2019 was a continuation of the weak start to the year, with the first sale of the year of $500m similarly falling far short of earlier sales. Sales revenue in the second sales event since 2016 have realised $617m, $553m and $563m, respectively, in the three years since then.
It’s the first time since De Beers started releasing data on its 10 sales that revenue is below $1bn in the first two events of the year.
“Demand for rough diamonds remains consistent during the second sales cycle of 2019. While overall demand for lower-value rough diamonds remains subdued, we did see an increase in demand from India as factories begin to restock,” De Beers CEO Bruce Cleaver said.
Three new diamonds mines, including the Gahcho Kue mine De Beers shares with Mountain Province in Canada, have pushed up supplies of rough diamonds since 2017, said a Rapaport Research report on Tuesday.
Global rough diamond output dipped by 3% in 2018 to 146-million carats and was forecast to fall again to 140-million carats this year, Rapaport, a polished diamond market specialist, said.
"However, that may be too much for the market to absorb. We believe the mining companies have over-projected the volume of rough they can sell in 2019, especially at current price levels," it said.
"The market is saturated with polished [diamonds] that [are] difficult to move, and manufacturers are struggling to make a decent profit from current supply."
In the 2018 Anglo American annual report, Cleaver clearly flagged the difficulties in the lower-value diamond segment of the market. “In the second half [of 2018], 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,” Cleaver said.
The midstream segment of the diamond industry is the cutting and polishing business. These businesses need cash to buy rough diamonds, pay for working costs — and wait for payment from jewellery retailers who have increasingly moved to a model of paying for diamonds once they’re sold. “This resulted in a surplus of low-priced polished diamonds at the end of the year, leading to lower sales at the start of 2019,” Cleaver said in the report.
Russia’s Alrosa, the world’s largest diamond producer by number of carats, reported a 44% year-on-year decline in sales in January of $282m, of which $278m was from rough diamonds with the balance coming from polished diamonds.
Alrosa reported full-year 2018 sales of 38-million carats, an 8% fall, while revenue was $4.5bn, a 6% drop.
In 2018, De Beers had full-year production of 35.3-million carats, up 6% year-on-year, which, according to the data released during the course of 2018, realised revenue of $5.39bn, up from the $5.31bn the year before.
Production from De Beers was the highest in at least four years, with the new Gahcho Kué mine in Canada reaching full production and, in part, adding to difficulties in the global diamond market because of its high levels of small, lower-value diamonds.
The pending closure in the next couple of years of the Argyle mine in Australia, a major source of small diamonds, is expected to restore the balance of these diamonds in the market.