Anglo American, the parent company to De Beers says the macro-economic conditions underpinning consumer demand for diamonds remain broadly stable in aggregate, but with persistent downside risks looking into H2 2016-including recent social and political instability.
The global diversified giants said caution is also expected when buying in the midstream by polishers. When announcing its interim financial results for the first half of 2016, it added that production guidance will remain unchanged. “Rough diamond revenues are expected to be weighted towards H1 2016, consistent with prior years and typical of the seasonal drivers,” said the company headed by Mark Cutifani.
Anglo said its total revenue increased by 8% to $3.3 billion (H1 2015: $3.0 billion), mainly driven by higher rough diamond sales, which increased by 11% to $3.1 billion. This was due to a 29% increase in consolidated sales volumes to 17.2 million carats (H1 2015: 13.3 million carats), partly offset by a 14% decrease in average realised rough diamond prices to $177/carat (H1 2015: $206/carat) which reflected the 16% lower average rough price index for the period.
However, rough diamond production decreased by 15% to 13.3 million carats (H1 2015: 15.6 million carats), reflecting the decision to reduce production in response to prevailing trading conditions in H2 2015. Preliminary data indicate that during H1 2016, the US market showed positive growth overall, while the Chinese market was broadly stable. Japan demonstrated modest growth in local currency, whereas consumer demand in India was hampered by a month-long jewellers’ strike in March 2016 against new government regulations.
Sentiment in the midstream improved during the period under review, as good year-end holiday sales, particularly in the US, necessitated retailer inventory restocking, which enabled the cutting centres to rebalance their polished stock.
At the same time, rough inventories in the midstream were lower, after materially restrained buying in H2 2015. The significant midstream restocking, when combined with the contribution of positive holiday sales, resulted in positive growth in demand for rough diamonds in H1 2016.
“In the Midstream, caution in rough diamond buying is expected to prevail, as the supplies bought by diamantaires in H1 2016 are gradually converted into polished,” said Anglo.
“Forecast diamond production (on a 100% basis) for 2016 remains unchanged and is expected to be in the range of 26-28 million carats, subject to trading conditions. Consistent with this level of production, plans are in place to deliver approximately $200 million of cash savings in production costs, overheads, capital expenditure and disposal proceeds in 2016.”
Debswana’s production decreased by 9% to 10.5 million carats, with Orapa down by 25% compared with H1 2015 and Damtshaa (a satellite operation of Orapa) placed on care and maintenance from 1 January 2016. Jwaneng Cut-8 continues to progress and, by the end of June 2016, 77% of the 500 million tonnes of waste stripping required to expose the ore had been mined. The first Cut-8 ore to the processing plant remains scheduled for 2017.
ForevermarkTM continued to expand its retailer network and is available in 1,874 outlets (a 6.5% increase since the end of 2015) in 38 countries, including the new markets of Hungary, Thailand and South Korea. In June 2016, ForevermarkTM announced the launch of the Black Label collection (an innovative collection of fancy-shape diamonds with unrivalled sparkle in every cut) and announced a Q4 2016 US national television campaign featuring the Ever UsTM two-stone diamond collection. In Q1 2016, De Beers also invested in additional Chinese New Year marketing campaigns to further stimulate diamond jewellery gift giving, which was received positively by the industry.
De Beers Diamond Jewellers maintained its focus on fast-growing markets, with 35 stores in 16 key consumer markets around the world. Growth in mainland China sales helped to offset the significant impact of lower Chinese tourist levels in Europe.