De Beers' fading fortunes
DE BEERS CEO: Bruce Cleaver

Challenging times ahead for mining giants

Although it started the year on a high, it appears tough times lie ahead for the diamond mining giant, De Beers.

Writing in the company’s annual report, De Beers CEO, Bruce Cleaver noted that although the current economic forecasts remain positive, the outlook for 2019 global diamond jewellery consumer demand faces a number of ‘headwinds’.

These include the risk of a potential intensification of US-China trade tensions, the volatility of the exchange rate as well as the Chinese government’s ability to rebalance economic growth towards consumption.

In June, De Beers sales slumped to a 20-month ‘low’ of $390 million.

It is reported the company reduced its prices by an estimated four to eight percent, which was not enough to stimulate demand from sightholders.

The diamond dealers remain cautious due to higher-than-normal polished diamond inventories in the midstream.

In the midstream, De Beers started the year on a positive note, reportedly due to higher demand for polished diamonds from the U.S and Chinese retailers.

“However, in the second half, the low-priced product segment came under considerable pressure due to weak demand and surplus availability, the rapid depreciation of the Rupee (Indian currency) and a reduction in bank financing in the midstream,” explained Cleaver.

This, according to the CEO, resulted in a surplus of low-priced polished diamonds at the end of 2018, leading to lower sales at the start of this year.

Business in diamond trading is reportedly slow during this period as most U.S wholesalers close for the summer vacation.

However, things are expected to stabilise by the end of the month.

“Production in 2019 is expected to be in the range of 31-33 million carats, subject to trading conditions. The lower production is driven by the planned process of exiting from the Venetia open pit, with the underground operation becoming the principal source of ore from 2023,” noted Cleaver.

Coupled with this, Cleaver says an increased proportion of production in 2019 is expected to come from De Beers Group’s joint arrangement partners.

In 2017, De Beers recorded a staggering $6.1 billion in revenue, a four percent growth from the previous year.

This was predominantly attributed to rough diamond sales driven mainly by improved overall consumer demand of diamond jewellery and a one percent increase in the average rough diamond price index.

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