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Rough DIAMONDS

WHILE DE BEERS SALES WILL FALL MORE THAN 20 PERCENT, ITS PRODUCTION OF ROUGH DIAMONDS WILL RISE IN 2019

 

With the last of its ten rough diamond sales cycles wrapping up December, De Beers has ended the year on a little more of an upbeat note, but nonetheless down on what it reported in 2018.

According to the company, the value of its 10th sales cycle was $425 million, up from $400 million from the previous sales cycle. Still, it was 20 percent below the figure reported for December 2018.

“This is an encouraging sign that the rough diamond market is showing signs of stability and holding this demand level,” said analysts at Berenberg, as quoted by the Financial Times.

De Beers’ full-year rough diamond sales are expected to come in close to $4 billion, compared to $5.4 billion in all of 2018.

“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,” said Bruce Cleaver, chief executive of De Beers.

DE BEER’S ROUGH PRODUCTION RISES TO 34 MILLION CARATS

Despite the fall in sales, rough diamond production is expected to increase rise to as high as 34 million carats in 2020, up from 31 million carats in 2019. Still, this will be 1 million carats less than previously forecast in both 2020 and 2021.

What this means is that De Beers is stockpiling a far greater percentage of the diamonds it has been mining, which would seem to be a change in its recent approach, in which it has said that it does not intend returning to being a custodian of the market.

But it is an approach that has also been taken by its Russian rival Alrosa, which also reduced the supply of rough diamonds to the market, but built up its own stockpiles through steady production.

Rough diamond production at De Beers is expected to increase rise to as high as 34 million carats in 2020, up from 31 million carats in 2019.

Alrosa has not yet announced end-of-the-year figures, but at the beginning of October had reported that diamond production between July and September grew by 24 percent quarter on quarter and 15 percent year on year to 12.1 million carats. 

The company attributed the quarter on quarter rise to “seasonally increased production at alluvial deposits,” but it taken place during a period when sales excluding polished diamonds fell by 23 percent quarter on quarter to 6.4 million carats.

Sorting rough diamonds at Alrosa’s rough diamond sales subsidiary in Russia. Figures were down by about 24 percent year on year during the third quarter.

REDUCED SUPPLY IN MIDSTREAM COULD HELP RAPID RECOVERY

The reasons for both De Beers and Alrosa stockpiling diamonds is varied. Both companies are extremely cautious about laying off workers, and will often be prepared to assume a greater financial burden in order to avoid the eventuality

The companies are also cognizant of the pressure being experienced in the midstream of the markets, where profit margins remain particularly low. Over the past year both De Beers has offered greater flexibility on prices and terms to buyers. 

While general opinion in the midstream is a the industry downturn will continue at least through the first half of 2020,  the mining companies mining seem hopeful that generally robust demand in the retail markets, and tier policy over the past year to reduce the tightening supply of good being held by trade will lead to a relatively quick recovery.

If De Beers and Alrosa continue to “act as market custodians, as they have been in recent months, we think that this could start a period of sustained price stability for rough,” stated the Berenberg analysts quoted by the Financial Times.