De Beers expects diamond demand to rebound
Isaac Pinielo | Tuesday July 28, 2015 14:51
De Beers’ executive head of strategy, Bruce Cleaver told the media at a conference call last Friday that although rough diamonds demand is likely to remain constrained for the year as a whole, the long-term future of the diamond industry still looks good.
“The diamond industry began to face pressures in the fourth quarter of 2014 as consumer demand growth was softer than expected and the Gemological Institute of America (GIA) backlog was cleared,” he said.
He added that this led to abnormal high pipeline inventories of polished diamonds at the start of 2015.
Cleaver noted that growth in consumer demand has also been constrained in the first half of 2015 due to weakness in the macroeconomic environment and US dollar strength impacting demand in non-US$ denominated areas.
“When combined with the ongoing liquidity or profitability challenges faced in the midstream and the concern over recent bankruptcies in India, this resulted in significant indigestion throughout the pipeline,” he said. He also indicated that they expect global diamond jewellery demand to remain stable in 2015, noting that the US is likely to grow moderately this year and that other markets are expected to show growth in local currency.
He said the strength of the US dollar and lower Chinese DJ (diamond jewellery) demand is likely to offset this.
During the first half of the year, De Beers’ total sales dropped 21 percent to $3 billion, compared to $3.8 billion in 2014, with rough diamond sales also falling 21 percent to $2.7 billion.
The lower rough diamond revenue reflected a 27-percent drop in consolidated sales volumes to 13.3 million carats, down from 18.1 million carats in the prior period.
However, the average diamond price rose by seven percent to $206 per carat (p/c), from $192 p/c in the previous year owing to the sale of a stronger product mix, despite a four-percent lower average rough price index.
De Beers’ underlying EBIT (Earnings Before Interest And Taxes) decreased by 25 percent to $576 million, compared to $765 million in the first half of 2014.
This was due primarily to softer rough diamond demand, resulting in weaker revenue, which was partly offset by lower operating costs and favorable exchange rates.
Unit costs declined by approximately 10 percent compared to the first half of 2014, with the effects of inflation being more than offset by foreign exchange benefits and cost control.