Debswana output falls 16% on softer demand
Brian Benza | Tuesday February 2, 2016 15:33
According to figures published by Anglo American, the decline was largely propelled by a fourth quarter 21 percent production decrease to 4.7 million carats as a result of a reduction in tonnes treated at Jwaneng and Orapa. “The decline was consistent with the decision to reduce production in line with trading conditions. Damtshaa was placed on care and maintenance from January 2016,” said Anglo. Listed Anglo American owns 85 percent of De Beers, which in turn holds an equal joint shareholding in Debswana with the Botswana government.
The reduced output at Debswana also pulled down De Beers’ output numbers in a year characterised by constrained diamond prices and demand. In 2015, De Beers rough diamond sales slumped 40 percent to 20.6 million carats as market weakness and lower diamond manufacturing levels took their toll.
The decline in sales volumes coincides with a 12 percent drop in production to 28.7 million carats over the previous year as the miner reduced rough output in response to trading conditions.
Rough diamond sales hit rock bottom in 2015 due to an ‘indigestion’ in the diamond pipeline as cutters and polishers, who suffered from low polished prices, pooled rough diamonds. As a result, Botswana slashed down its 2015 growth forecast while the budget was seen swinging into a deficit.
De Beers has already hinted towards further reduced production in 2016 to 26 million from 28 million carats with Debswana output also seen at 20 million from an original projection of 21 million carats.
“Diamond prices had risen very rapidly following the global financial crisis, and De Beers attempted to maintain rough diamond prices and supply at high levels even as demand was weakening.
“As a result, profitability was squeezed for diamond cutters and polishers, and the pipeline became overstocked as final demand slowed. This imbalance became overwhelming around the middle of 2015, since then sales of rough diamonds have dropped significantly and prices have fallen. As a result, Debswana has had no choice but to cut production and align it to market demand, which in turn feeds through to Botswana’s GDP growth,” says a market report from Econsult.
The low production figures come after De Beers announced an improvement in revenue from the first sight of 2016 where sales doubled to $540 million (P6.2 billion) compared to the December sight.
According to industry analysts at Rapaport, De Beers is moving forward in the right direction by reducing rough prices sufficiently to enable increased sales of rough diamonds and a resumption of diamond manufacturing activity.
From a high of 34 million carats in 2007, diamond production, which contributes just over 20 percent to Botswana’s GDP and 65 percent to foreign exchange receipts, has plateaued in the last few years as Debswana caps production to match weakening market conditions.
In the medium to long-term, De Beers expects industry fundamentals to strengthen as global diamond production plateaus and demand continues to steadily increase.