Decline In Demand For Diamonds, De Beers Continues To Cut Production

Anglo American Plc (British and American resources group) recently said that its diamond giant De Beers (Day Beers) was affected by factors such as Sino US trade friction and strong U.S. dollar, which continued to cut production. Sales in the first half of fiscal year 2019 fell by 17% compared with the same period last year.

From May 21st to June 24th this year, the sales volume of diamond raw stones in the fifth batch of De Beers in 2019 decreased by 33% to 390 million US dollars compared with the same period last year, down 6% from the fourth batches in 2019. (see "ornate ambition": Sales of De Beers diamond stone have dropped sharply compared with the same period last year, and the situation in China's jewelry market is grim).

De Beers said the demand for polished diamonds and core diamonds declined, mainly due to the closure and inventory of retail stores in the US. Bruce Cleaver, chief executive of the company, pointed out that the reasons, including the Sino US trade friction, the closure of the US government at the end of January, the recent Hongkong issue and the strong US dollar, also had a negative impact on the performance. Today's diamond market is "no different from 2014~2015 years." In the 2014~2015 year, because of the decline in demand for raw materials and the decline in commodity prices, the diamond market also weakened.

Bruce Cleaver points out that the company is currently facing three major problems, namely, the excessive number of polished diamonds, financial pressure from banks and declining demand for jewellery. But he said the world's largest diamond market is expected to grow in the US, which is expected to be more balanced in the second half of the fiscal year. De Beers is currently working with customers to limit supply. In the first half of the year, the production of raw stone dropped by 11% compared with the same period last year.

As of the first half of June 30th, the key operating data of De Beers are as follows:

Sales fell 17% to 2 billion 650 million US dollars year-on-year.

Diamond stone sales fell 21% year-on-year.

EBITDA (profit before interest tax depreciation and amortization) fell 27% to 518 million US dollars year-on-year.

Output fell 11% to 15 million 600 thousand carats year-on-year.

Sales fell 13% to 1550 carats year-on-year.

Despite the decline in the performance of the diamond sector, Anglo American said in July 25th that EBITDA increased by 19% over the first half of the fiscal year, benefiting from high priced iron ore.

Anglo American points out that future diamond demand is one of the fundamental challenges it faces. De Beers has been competing with synthetic diamonds in recent years. In July 2018, the De Beers subsidiary Element Six invested $94 million to start the artificial diamond factory near Portland, Oregon. The artificial diamond produced in this factory will be widely used in the accessories of De Beers brand in the future. The move of De Beers led to a decline in the wholesale price of synthetic diamonds by about 60%.

Bruce Cleaver said De Beers is still trying to solve the consumer's doubts - the difference between natural diamond and synthetic diamond. When De Beers announced the entry into the synthetic diamond industry, there were also people in the industry who believed that De Beers actually wanted to interfere with the competition of diamond makers through low-cost strategies and consolidate the status of natural diamonds.

From a long-term source, De Beers is still more optimistic about natural diamonds. In May of this year, De Beers announced that Debmarine Namibia, a joint venture holding 50% of the Namibia government, will spend $468 million to build the new diamond mining ship equipped with high-tech measuring equipment to facilitate the mining of diamonds in Namibia waters.

Bruce Cleaver said that the new mining ship is expected to be operational in 2022, and will increase the annual output of Debmarine diamonds by 500 thousand carats of diamonds, which is about 35% higher than the current production. Author: Jiang Jingjin