Covid-19 batters De Beers’ diamond sales

Rough diamond sales at De Beers, the world’s largest source of diamonds by value, fell by more than a third in February because of the outbreak of the Covid-19 coronavirus.

De Beers, which sells diamonds to a handpicked group of about 80 buyers 10 times a year in Gaborone at events called sights, reported its second sale of the year achieved $351m. This was compared to the $551m achieved in the first sale of the year and $496m in the same period a year earlier.

“Following an improvement in demand for rough diamonds during the first sales cycle of 2020, we recognised the impact of Covid-19 on customers focused on supplying the Chinese market and put in place additional, targeted flexibility to enable customers to defer allocations of the relevant rough diamonds,” said De Beers CEO Bruce Cleaver.

So far this year, De Beers has reported sales of $906m, the slowest start since it first released data on its sales at the start of 2016.

“Today’s sales miss should not come as a surprise to the market given the disruption caused by the Covid-19 outbreak,” Morgan Stanley analysts said in a note. Morgan Stanley lowered its full-year diamond sales forecast, which it had pegged at $4.313bn, saying it saw a 2% decline on this number after Wednesday’s sales data.

Polished diamond experts, US-based Rapaport said the cut and polished segment of the industry is under intense pressure. “Diamond trading declined sharply in February due to economic uncertainty surrounding the coronavirus. Manufacturers and dealers are facing a severe liquidity crunch as sales to China and Hong Kong have stopped,” it said in a note on Tuesday.

“With Chinese retail at a standstill, the slump in jewellery sales means stores have more inventory than usual for this time of year. Chinese buyers are not expected to return to the market in the coming months. That will result in a build-up of excess goods and a squeeze on liquidity among polished-diamond suppliers.” 

Diamond miners noted that in the past two years there has been a problem with surplus rough, cut and polished inventory clogging up the midstream industry.

De Beers is 85% owned by Anglo American. The Botswana government holds the balance.

Cleaver told Business Day in February that the way the sights would be run, and the traditional model, would be revised to take into account changing market circumstances. The prevailing contracts end in December 2020.

During 2019, De Beers introduced unprecedented flexibility in its sales approach, allowing clients to decline boxes of diamonds and pick and choose the diamonds they thought they could sell. In the past, if clients refused a box it would affect De Beers’ decision on the next year’s diamond allocations, effectively penalising those buyers.

seccombea@businesslive.co.za