De Beers, the leading diamond mining company controlling around 40 per cent of the world’s output, reported a 12 per cent decline in rough diamond production in the first half of the current calendar year due to weak buying sentiment in India.
The company produced 13.45 million carat of rough diamond in the first half ending June this year as compared to 15.53 million carat in the corresponding period last year. The H1, 2012 output, however, was a staggering 57 per cent lower than 31.33 million carat the company produced in the second half of the 2011.
The decline in De Beer’s output is likely to increase prices of both rough and polished. Since every 11 out of 13 diamond mined globally are processed in India, the impact of price rise would immediately hit demand of rough diamond and sales of solitaire and diamond jewellery in global markets.
Announcing the H1 financial result on July 20, a senior company executive said, “DTC H1 sales decreased to $3.1 billion (H1: 2011 $3.5 billion) as a result of lower demand and changing product requirements from Sightholders. After a very strong H1 2011, the difficult trading conditions experienced during Q4 2011 continued, as expected, during H1 2012. While overall consumer demand for polished diamonds remained relatively healthy, Sightholder demand was impacted by increased stock in the cutting centres, tightening liquidity and challenging conditions in India. However, early indications are that the US market continued to perform well, and the Chinese market, while slowing considerably, still showed positive growth.”
The decline in production proportionately hit the company’s sales during the first half of the current calendar year. Total sales during the period plunged by 14 per cent to $3.35 billion from $3.89 billion in the same period last year.
Net profit of the company during the period nosedived by 51 per cent from $715 million to $351 million.
In light of prevailing rough diamond market trends, and in keeping with De Beers’ stated production strategy from Q4 2011, operations continued to focus on maintenance and waste stripping backlogs. This strategy has enabled De Beers to meet Sightholder demand for rough diamonds while gradually positioning the mines for future increases in demand.
The executive further hoped that the trading conditions in the mid-stream to remain challenging during the second half of 2012. The company will continue to produce in line with Sightholder demand and invest in stimulating and capturing consumer demand growth, he added.
Provided there are no unforeseen economic shocks, a moderate positive growth is expected in global diamond jewellery sales for the full year 2012, albeit at relatively modest levels, especially when compared to the exceptional growth levels seen in 2011. In the short term, the US, China, the Gulf and Japan are expected to contribute the bulk of the growth, while India and Europe are expected to remain relatively weak.
In the long-term, the fundamentals of the diamond industry remain strong as demand will continue to outstrip supply, he forecast.
