The Russian company’s moves mirrored that of its chief rival, De Beers, which at the end of the July reported that its sixth sales cycle has been worth $250 million, down 53 percent from the $533 million that had been sold during the sixth cycle in 2018.
But despite the dramatic slowdown in the volume of new supply entering the pipeline, there is not an air of panic, neither in the market or among rough diamond producers.
“A significant decline in diamond sales was attributable to a number of factors including a sizable level of diamond inventory overhang in the midstream built-up last year on abnormally high demand growth,” explained Evgeny Agureev, Director of Alorsa’s United Selling Organization. “This factor was exacerbated by a low availability of credit facilities issue experienced by the mid-stream, trade tensions between USA and China, and other factors.”
DE BEERS REDUCES PRODUCTION FORECAST, BUT ONLY SLIGHTLY
Given the lower volume of sales, De Beers did say it was adjusting its production total this year to 31 million, down from a 33 million earlier forecast has been quoted several months back. But that reflects a 6 percent cut, which is dramatically lower than the massive reduction in sales that have been reported over the summer.
For its part, Debswana, the largest rough diamond producing subsidiary in the De Beers stable, accounting for up to two-thirds of output, said it was holding production steady, after setting a target of 24 million carats for 2019, which is only slightly down on the figure that was produced last year.
“As such, Debswana has not changed its production plans but as always retains the flexibility to adjust production up or down as per prevailing demand conditions,” responded Agatha Sejoe, the company’s corporate affairs manager, in a written note to the local press.
Mining at Debswana’s Jwaneng mine. The largest subsidiary in the De Beers Group, has said it is holding production steady, with a target of 24 million carats for 2019.
Nonetheless, Sejoe added that Debswana was monitoring trends in the rough diamond market closely, but and was optimistic that the necessary contingencies were in place to keep its financial position stable.
A night-time view of Alrosa’s Nyurba open-pit mine. The head of the company’s rough sales arm believes that, despite recent cuts in the volume of goods being sold to clients, the diamond market in general is returning to a reasonable supply-demand balance. (Photo courtesy of Alrosa)
“We remain positive because the robust business plan that we have in place and strategic management of our operations, enable us to handle ebbs and flows in demand for rough diamonds,” she said.
SIGNS EXIST THAT SUPPLY AND DEMAND ARE BECOMING BALANCED
Debswana’s sanguine attitude may because it has inside information about a decision to related decision by De Beers to lower production more substantially at the company’s mines in South Africa. This would be good news for the Botswana government, with about one fifth of its economy’s gross domestic product (GDP) generated by the diamond sector, and about two thirds of foreign currency revenues. In South Africa’s the equivalent percentages are considerably lower.
In should be noted that the Botswana government has considerable sway in the De Beers board room. For not only is a 50 percent shareholder in Debswana, with De Beers holding the other 50 percent, but it is the second largest shareholder in De Beers itself, after the Anglo American Corporation.
As it is, some of the powerful players in the market are seeing the current slowdown in rough diamond sales temporary phenomenon.
One of them is Alrosa’s Agureev, who said that the company’s “price over volume strategy offers more flexibility and accuracy when it comes to defining sales, hence holding back pressure on the market.”
“Recent statistics on the net imports of rough diamonds to India and net export of polished diamonds from this country suggest that the diamond market is gradually coming back to supply-demand balance,” he said in a statement released to the media.