Jul 26, 2019

De Beers H1 Rough Diamond Sales Down 21% to US$ 2.3 Billion

De Beers yesterday announced details of its financial and operational overview for the six months ending June 30, 2019, stating that rough diamond sales declined 21% in value terms to US$ 2.3 billion (30 June 2018: US$ 2.9 billion), and 13% in volume terms to15.5 million carats (30 June 2018: 17.8 million carats), while the average rough price index decreased by 4%.

The Company said that 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, its underlying EBITDA decreased by 27% to US$ 518 million (30 June 2018: US$ 712 million).

Rough diamond sales were affected by 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, De Beers noted.

The average realised rough diamond price decreased by 7% to US$ 151/carat (30 June 2018: US$ 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.

De Beers further stated that in late 2018, US retail results were impacted by stock market volatility and US-China trade tensions. In the first half of 2019, demand outside the US continued to be impacted by US-China trade tensions, the Hong-Kong protests and a stronger US dollar, particularly affecting China and the Gulf. In the US, retail store closures and destocking have also impacted demand for polished diamonds and, in turn, midstream demand for rough diamonds.

However, De Beers said it believes that underlying GDP growth remains supportive of consumer demand growth and “is expected to bring midstream and retailer stocks back to more normalised levels as we move into 2020, subject to an improving macroeconomic environment”.

As reported earlier, 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.

Global trade tensions also adversely impacted De Beers Jewellers, which continues to progress by upgrading and expanding its network and integrating its online and store presence into an improved combined offering.

Looking ahead, De Beers said that rough diamond trading conditions in the midstream are expected to continue to be challenging in the short term as a result of high polished inventory levels. Longer term, the outlook remains positive in light of the expected growth in consumer demand and a reducing supply of diamonds.

The Company said that its production guidance (on a 100% basis, except Gahcho Kué on an attributable 51% basis) has been revised to around 31 million carats, at the lower end of the previous range of 31-33 million carats, in response to the weaker trading conditions described above.