De Beers Sales Slump In Cycle 6, 2019

De Beers said its rough diamond sales were lower during its sixth sales cycle of the year on the back of a host of factors that are afflicting the industry. According to diamond major’s Rough Sales For Cycle 6, 2019, figures for the sight stood at US$250 million which was seen as the lowest in years. The group’s chief executive officer, Bruce Cleaver highlighted uncertainties in the market.

“With ongoing macroeconomic uncertainty, retailers managing inventory levels, and polished diamond inventories in the midstream continuing to be higher than normal, De Beers Group provided customers with additional flexibility to defer some of their rough diamond allocations to later in the year,”  said Cleaver.

“As a result, we saw a reduction in sales during the sixth cycle of 2019.” The figures were worse than the actual US$391 million recorded in Cycle 5 2019 and far apart from year-on-year figure of US$ 533 million in Cycle 6 2018 (actual).

Financial and operational overview

The group recently said its underlying EBITDA decreased by 27% to $518 million (30 June 2018: $712 million) due to the challenging midstream trading environment and slowing consumer demand growth, which has resulted in a decrease in the rough diamond price index and realised price, as well as lower margins in the trading business.

It said total revenue decreased by 17% to $2.6 billion (30 June 2018: $3.2 billion), with rough diamond sales declining by 21% to $2.3 billion (30 June 2018: $2.9 billion). Consolidated rough diamond sales volumes decreased by 13% to 15.5 million carats (30 June 2018: 17.8 million carats), while the average rough price index decreased by 4%. 

“The lower rough diamond sales reflected higher than expected polished stocks at retailers and the midstream at the beginning of 2019, with overall midstream inventory levels continuing to be high throughout the first half,” the company said when announcing its interim results for 2019.

“The average realised rough diamond price decreased by 7% to $151/carat (30 June 2018: $162/carat), driven by the reduction in the average rough diamond price index and a change in the sales mix in response to weaker conditions.”

Operational performance

Rough diamond production decreased by 11% to 15.6 million carats (30 June 2018: 17.5 million carats), primarily driven by a reduction in South Africa (DBCM) and Botswana (Debswana). As a result of weaker demand experienced in the period, additional production was not ramped up to compensate for Venetia’s transition from open pit to underground.

In Botswana (Debswana), production decreased by 3% to 11.7 million carats (30 June 2018: 12.1 million carats). Production at the Orapa Regime was 16% lower following a planned shutdown brought forward from the second half of 2019, partly offset by a 9% increase at Jwaneng, driven by higher throughput and a deferred plant shutdown.

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