De Beers Rough Prices Decline 5% in 2019

A drop in rough-diamond prices and a sales shift to lower-value items weighed on De Beers’ profitability in the second half, according to executives at parent company Anglo American.

The miner’s rough-price index fell around 5% year on year for the first nine sights of 2019 amid a market slowdown, Anglo CEO Mark Cutifani noted in a call with investors last week. Combined with the weaker product mix, the average selling price slipped approximately 20%.

“It’s been a tough half…for diamonds,” said finance director Stephen Pearce. “In addition to the general price decrease and general market conditions and softness that we’re seeing, we have also sold a lower mix of diamonds, and with that comes lower EBITDA [earnings before interest, taxes, depreciation and amortization] margins.” These margins will be “substantially lower” than the 20% it reported for the first six months, Pearce added.

De Beers’ rough sales declined 26% to $3.6 billion for the January-to-November period, as an oversupply of rough and polished in the midstream hurt demand. Rising diamond stockpiles contributed the majority of Anglo’s $500 million inventory buildup this year, the company said.

However, buyers’ focus on purchasing cheaper items means De Beers now holds relatively high-quality rough inventory that it can sell next year at better margins, the executive explained. “What we’ve actually got then sitting in stock is a pretty good mix that we’ll exit the year-end on, which should have some pretty good EBITDA margins,” Pearce continued.

The drop in the price index reflects discounts of 4% to 8% De Beers offered for lower-quality rough at its June sight, plus a price reduction of about 5% on a wider range of goods in November. That latest move improved profitability for sightholders, resulting in steady demand at last week’s December sight, the 10th and final sales cycle of the year, a rough broker told Rapaport News on condition of anonymity. The miner left prices unchanged for the sale, which ended Friday, the broker added.

For December, De Beers also reverted to its standard limitations on sightholders rejecting goods, ending several months of unprecedented concessions designed to ease the midstream diamond glut.

“We’ve certainly seen a little bit of improvement later in the year,” Cutifani said. “The first couple of sights in the new year will be…a better point [to assess] how that market is going. We’ve seen some encouragement, but I think it’s still a little too early to bank that in any more of a substantive sense.”

De Beers is scheduled to announce the value of the December sales cycle this Wednesday, and will release its annual financial results on February 20.

Source: DCLA

De Beers Rough Prices Decline 5% in 2019

A drop in rough-diamond prices and a sales shift to lower-value items weighed on De Beers’ profitability in the second half, according to executives at parent company Anglo American.

The miner’s rough-price index fell around 5% year on year for the first nine sights of 2019 amid a market slowdown, Anglo CEO Mark Cutifani noted in a call with investors last week. Combined with the weaker product mix, the average selling price slipped approximately 20%.

“It’s been a tough half…for diamonds,” said finance director Stephen Pearce. “In addition to the general price decrease and general market conditions and softness that we’re seeing, we have also sold a lower mix of diamonds, and with that comes lower EBITDA [earnings before interest, taxes, depreciation and amortization] margins.” These margins will be “substantially lower” than the 20% it reported for the first six months, Pearce added.

De Beers’ rough sales declined 26% to $3.6 billion for the January-to-November period, as an oversupply of rough and polished in the midstream hurt demand. Rising diamond stockpiles contributed the majority of Anglo’s $500 million inventory buildup this year, the company said.

However, buyers’ focus on purchasing cheaper items means De Beers now holds relatively high-quality rough inventory that it can sell next year at better margins, the executive explained. “What we’ve actually got then sitting in stock is a pretty good mix that we’ll exit the year-end on, which should have some pretty good EBITDA margins,” Pearce continued.

The drop in the price index reflects discounts of 4% to 8% De Beers offered for lower-quality rough at its June sight, plus a price reduction of about 5% on a wider range of goods in November. That latest move improved profitability for sightholders, resulting in steady demand at last week’s December sight, the 10th and final sales cycle of the year, a rough broker told Rapaport News on condition of anonymity. The miner left prices unchanged for the sale, which ended Friday, the broker added.

For December, De Beers also reverted to its standard limitations on sightholders rejecting goods, ending several months of unprecedented concessions designed to ease the midstream diamond glut.

“We’ve certainly seen a little bit of improvement later in the year,” Cutifani said. “The first couple of sights in the new year will be…a better point [to assess] how that market is going. We’ve seen some encouragement, but I think it’s still a little too early to bank that in any more of a substantive sense.”

De Beers is scheduled to announce the value of the December sales cycle this Wednesday, and will release its annual financial results on February 20.

Source: DCLA

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ABN Amro Tightens Diamond Lending Terms

ABN Amro will implement changes to its guidelines for lending to the diamond industry in 2020, reasoning that the trade has become more efficient and now requires less credit.

The midstream’s reliance on working capital funding should have diminished given it has streamlined its production and sales processes, a spokesperson said in an email to Rapaport News. That new-found efficiency has resulted from technological advancements, a rising importance of labelled goods and an evolution of marketing channels, the spokesperson explained.

Despite this, “we have unfortunately not yet seen reduction in the typical trade credit terms,” she added, explaining the bank’s decision to change its credit policy.

The lender will reduce its financing from 70% to 65% of the total value of rough purchases, effective from March 1, the bank said in a letter to customers seen by Rapaport News. It has also cut the credit repayment period from 30 to 15 days, while giving clients the option to request an extension of up to 10 days in the event their rough has not been sold in full.

The bank said it may also require additional collateral, such as a property mortgage, against each credit line. Furthermore, clients will be required to provide monthly financial information about their sales and purchases — as well as an inventory of rough and polished, a list of trade receivables and payables, and details on bank positions — to maintain their credit. This information should be disclosed within three weeks after each month end, effective from the beginning of 2020, according to the letter.  

In its latest earnings report, published November 13, ABN Amro listed diamonds and the energy sector as the largest contributors to the impairments it incurred during the third quarter. This comes despite earlier measures to reduce its exposure to the industry. The group closed its US and Dubai branches in 2018 before announcing changes to its lending policy in July this year, whereby it would only offer credit if the buyer can make money from the rough.

The bank expects its latest measures to have a long-term benefit for the industry, with the hope that the trade will reduce its inventory and reliance on credit.

“The midstream unfortunately continues to play ultimate inventory holder and financier within the entire supply chain, which we believe is not beneficial as [the] main focus should be the value-add by converting the rough into polished diamonds and diamond set jewelry,” the bank stressed.

Source: DCLA

ABN Amro Tightens Diamond Lending Terms

ABN Amro will implement changes to its guidelines for lending to the diamond industry in 2020, reasoning that the trade has become more efficient and now requires less credit.

The midstream’s reliance on working capital funding should have diminished given it has streamlined its production and sales processes, a spokesperson said in an email to Rapaport News. That new-found efficiency has resulted from technological advancements, a rising importance of labelled goods and an evolution of marketing channels, the spokesperson explained.

Despite this, “we have unfortunately not yet seen reduction in the typical trade credit terms,” she added, explaining the bank’s decision to change its credit policy.

The lender will reduce its financing from 70% to 65% of the total value of rough purchases, effective from March 1, the bank said in a letter to customers seen by Rapaport News. It has also cut the credit repayment period from 30 to 15 days, while giving clients the option to request an extension of up to 10 days in the event their rough has not been sold in full.

The bank said it may also require additional collateral, such as a property mortgage, against each credit line. Furthermore, clients will be required to provide monthly financial information about their sales and purchases — as well as an inventory of rough and polished, a list of trade receivables and payables, and details on bank positions — to maintain their credit. This information should be disclosed within three weeks after each month end, effective from the beginning of 2020, according to the letter.  

In its latest earnings report, published November 13, ABN Amro listed diamonds and the energy sector as the largest contributors to the impairments it incurred during the third quarter. This comes despite earlier measures to reduce its exposure to the industry. The group closed its US and Dubai branches in 2018 before announcing changes to its lending policy in July this year, whereby it would only offer credit if the buyer can make money from the rough.

The bank expects its latest measures to have a long-term benefit for the industry, with the hope that the trade will reduce its inventory and reliance on credit.

“The midstream unfortunately continues to play ultimate inventory holder and financier within the entire supply chain, which we believe is not beneficial as [the] main focus should be the value-add by converting the rough into polished diamonds and diamond set jewelry,” the bank stressed.

Source: DCLA

De Beers Lowers 2020 Production Forecast

De Beers has reduced its production outlook for next year and beyond amid uncertainty about the health of the diamond market.

The miner now expects to recover between 32 million and 34 million carats in 2020, compared to its earlier outlook of 33 million to 35 million carats, parent company Anglo American said Tuesday. Its output is forecast to rise to between 34 million and 36 million carats in 2021, versus a previous projection of 35 million to 37 million carats.

“It’s a slight trimming of production [and] a prudent approach to supply outlook for next year, given the rebalancing the industry is going through,” David Johnson, head of strategic communications for De Beers, told Rapaport News Wednesday. “We’ve got some flexibility in that, so if we did see things change significantly, we could edge things back up again.”

An oversupply of polished diamonds in the manufacturing sector and sluggish consumer demand have forced De Beers to revise its production plan twice in five months. In July, it trimmed its 2019 estimate to around 31 million carats from its earlier prediction of 31 million to 33 million carats, citing weakness in the rough market. While 2020 production is anticipated to be higher, it will still lag behind the 35.3 million carats unearthed in 2018.

De Beers’ revenue has declined 26% for the year to date amid “challenging diamond-market conditions,” it noted in an investor presentation on Tuesday. Anglo American also expects inventory for the entire group to grow by around $500 million in 2019, with De Beers accounting for most of that increase. This follows the company’s decision to offer unprecedented concessions to sightholders in the second half of the year to enable them to buy less rough and reduce their stockpiles.

The excess inventory at diamond cutters has weighed on the entire market this year, with Bain & Company predicting a slight improvement in 2020. However, the management consultancy doesn’t expect a real opportunity for rebalancing until 2021.

“Ongoing supply-demand inequality will prevent full recovery of the industry [in 2020], and may be exacerbated by a continuing decrease in available financing for midstream players,” Bain said Tuesday in its annual sector-wide report. “Few producers have announced sufficient mining plan cuts, so we do not foresee a major decline in supply.”

A shift at De Beers’ Venetia deposit from open-pit to underground mining has also impacted production, as output there has fallen during the transition period. Production at the mine in South Africa was anticipated to increase in 2021 as it focuses on a high-grade section, the company said a year ago. However, the final transition to underground operations will result in a drop in company-wide production to between 33 million and 35 million carats in 2022.

The miner’s final sight of the year is currently taking place in Gaborone, Botswana.

Source: DCLA