Diamonds enter make or break period for 2023
Mbongeni Mguni | Monday September 25, 2023 06:00
Traditionally in the diamond industry, the period between Thanksgiving in the United States and the Chinese New Year, represents the peak retail selling period every year.
Healthy demand for diamond jewellery and stones in key markets such as the US is more critically required this year, as the crisis building for rough producers such as Botswana has partly been caused by high inventory levels of polished diamonds in the midstream.
Debswana’s sales reached an all-time high of P56.5 billion, last year, helped by a warming global economy, which in turn has contributed to the high levels of inventory this year.
Ongoing global economic uncertainties, especially in major markets such as the US, a softer than expected contribution from China, stiffer competition from synthetics and the industry’s reputational knock from the continued flow of sanctioned Russian diamonds into the market, have worsened the industry’s challenges this year.
Government, De Beers and other players in the rough diamond industry are hoping retail demand perks up enough in coming months to mop up the high inventories in the midstream, allowing room for producers such as Debswana to stabilise their output.
Meanwhile, De Beers’ only industry peer, Alrosa of Russia, this week announced that it was suspending sales for two months to try and supporting plunging prices, while at home, the Finance Ministry is primed to revise downwards both its economic growth and budget revenue forecasts for the year.
“Prospects for the remainder of the year remain uncertain and could be revised lower than is currently projected if the situation worsens in line with the prevailing weaker global demand prospects,” technocrats said recently in a draft budget blueprint. “The impact of falling diamond prices could further lower supply amid increasing production costs. “Overall, this shortfall in supply could potentially reduce production much lower than 24.1 million carats that is anticipated at the end of 2023, which could have an adverse impact in the growth in mining and quarrying.”
Officials at state-owned diamond trader, the Okavango Diamond Company (ODC), are similarly anxious about the market, particularly as the company is due to soon handle a higher allocation of rough diamonds from Debswana as part of government’s new sales agreement with De Beers. From as early as October, the ODC will be entitled to take up to 30% of Debswana’s output, a commitment that requires both financial muscle for the allocation and optimal marketing of the stones despite a depressed market.
“Our environment is delicate and unprecedented,” ODC managing director, Mmetla Masire told a briefing of citizen diamond players last Friday. “In 2023, we are lower than the COVID year and lower than where we have been before, in terms of the drop. “It’s true that some types of diamonds are performing reasonably well, but most are performing very badly.”
Masire said an indicator that the year was difficult could be seen in statistics from India which polishes at least 80% of the world’s rough diamonds. In the first half of the year, India exported $9 billion worth of polished stones, down from $12 billion over the corresponding period last year.
“It means that they are stockpiling a lot or consuming less and it means suppliers of these stones like us are not able to supply or have to supply less or have to hold back. “The numbers have to balance somewhere,” said Masire.
The difficult state of the industry was also confirmed by brief remarks made by De Beers’ Executive Vice-President, Diamond Trading, Paul Rowley, on Tuesday. Speaking at a graduation ceremony for diamond cutting and polishing trainees from KGK Diamonds, Rowley said the market was tough and reminiscent of the difficulties faced in 2019. Four years ago, the global rough diamond industry again experienced the build-up of rough diamonds in the midstream as well as tightening margins amongst cutters and polishers.
While the upcoming peak retail period is expected to determine the industry’s fortunes in the short to medium term, speakers at the African Mining Summit on Wednesday expressed concern that the challenges around demand and pricing for natural diamonds could be symptomatic of a structural issue, rather than a cyclical, market-related event.
Industry analysts have warned that synthetics will continue to pressure natural diamonds at certain sizes of stones, while other alternatives such as emeralds increasingly eat into the market as well, partly because of the backlash against Russian stones.