Diamond Industry Volatility Persists

After the diamond industry endured a difficult first six months of the year, De Beers does not anticipate any instant improvement for the last half of the year either. In the first half of the year, De Beers Group's total revenue decreased to US$2.8 billion (30 June 2022: US$3.6 billion), with rough diamond sales decreasing to US$2.5 billion (30 June 2022: US$3.3 billion), which the Group says reflects the softening in demand. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,4,3" ihc_mb_template="3" ] According to De Beers, total rough diamond sales volumes of 15.3 million carats were in line with the prior period (30 June 2022: 15.3 million carats) as a result of a higher proportion of lower-value rough diamonds being sold in 2023. Cynical “It has been a quite challenging environment within the diamond industry,” De Beers Executive President – Global Sightholder Sales, Paul Rowley, told the media recently. “The diamond industry has always been cyclical. We have our ups and downs, and last year was typically a bit positive.” Rowley said the 2022 performance came on the back of an industry and its market emerging from COVID-19. “We do know that in the US, we had the largest share of wallet or disposable income and disposable income itself had increased,” he noted. “Of course, as the US opened up, we did know that there would be some reduction due to competition.” Rowley said the opening of the US coincided with a challenging macroeconomic environment, with inflation and interest rates going up. “Consequently, we saw a reduction in sales at the retail level. On top of that we have seen China equally reopening, which could have given us some hope,” he said. Youth unemployment “But we were always conscious as to how China would reopen after such a long period, and likewise when we have seen some of its manufacturing capacity moving to other centres, particularly to places like India, Cambodia, and Vietnam.” Like the US, Rowley added, the reopening of the Chinese economy also met a challenging macroeconomic environment. “It is not quite where we would like it to be,” he observed. “Likewise, we are seeing an increase in unemployment, youth employment particularly is struggling.” According to Rowley, in China, the diamond industry is buoyant. But with youth unemployment on the rise, there has been a reduction in marriages there. As a result, he noted, De Beers experienced a crunch in two of its major markets - the US and China. On the positives side of things, Rowley told journalists that the underlying desirability for natural diamonds remains extremely positive into the future. “As we go through this period, anybody should not underestimate the future and the resilience of our product,” he stated. Midstream stock Providing an outlook for the remainder of the year, he said even with the difficult challenges that De Beers faced in the first half of the year, the Group remains on course to position itself for the future. “Challenges are there, and they will continue, as we said,” he said. “In the next six months, we are not expecting a rapid bounce-back at this stage (because) the macroeconomic situation is still looking uncertain.” According to Rowley, midstream stock has built up, particularly at polished levels. “Our sightholders have not been replenishing as quickly as we would have hoped,” he said. However, he noted that the rate of inflation is encouraging as it continues to drop, which could stimulate demand in the final and important quarter. Rowley disclosed that De Beers will be investing an additional US$20 million into generic natural diamond marketing. This is because as the as the ramping up of G7 measures to prevent the import of Russian-mined diamonds gains momentum, the potential to support greater demand for diamonds of non-Russian origin strengthens. Ready “We are working with all the relevant industry bodies to make sure that we are ready,” said Rowley. “Of course, we have Tracr in place, and we are working closely on how we can ensure that we are able to distinguish our product in line with those requirements going into the future.” Meanwhile, speaking to journalists on Wednesday last week, Investment Analyst at Kgori Capital, Kitso Mokhurutshe, said De Beers' lower sales were expected as buyers exercised caution mainly due to recession fears. “If you look at the latest cycle, which is Cycle 6, the sales were valued at US$410 million against US$456 million during Cycle 5,” Mokhurutshe pointed out. He said the reason this happened is that the midstream sector continues to take a cautious approach to diamond purchases due to the challenging macroeconomic environment, resulting in a significant increase in inventories. [/ihc-hide-content]

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Diamond Industry Volatility Persists

While fears of a recession among buyers and a drop in marriages in China are in the current mix of the “cynical” industry and its market, the ramping up of G7 measures against Russian diamonds and an underlying desirability for natural diamonds hold out potential for a strong resurgence.

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Diamond Industry Volatility Persists

While fears of a recession among buyers and a drop in marriages in China are in the current mix of the “cynical” industry and its market, the ramping up of G7 measures against Russian diamonds and an underlying desirability for natural diamonds hold out potential for a strong resurgence.

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