De Beers reported that its revenue for the first six months of the year (to June 30) was $2.6 billion, down 17 percent from the $3.2 billion during the same period in 2018. Rough diamonds sales during the period were $2.3 billion, down 21 percent from the $2.9 billion in the first six months of 2018. Pretax earnings for the period of $518 million, were down 27 percent from the $712 million reported for the same period last year.
De Beers attributed this to the challenging midstream trading environment and slowing consumer demand growth, which has resulted in a decrease in the rough diamond price index and realised price, as well as lower margins in the trading business.
Rough diamond trading conditions in the midstream are expected to continue to be challenging in the short term as a result of high polished inventory levels. Longer term, the outlook remains positive in light of the expected growth in consumer demand and a reducing supply of diamonds.
Production guidance has been revised to around 31 million carats, at the lower end of the previous range of 31-33 million carats, in response to the weaker trading conditions described above.
Consolidated rough diamond sales volumes decreased by 13 percent to 15.5 million carats (as against 17.8 million carats during the first six months of last year), while the average rough price index decreased by 4 percent.
De Beers said the lower rough diamond sales reflected higher than expected polished stocks at retailers and the midstream at the beginning of 2019, with overall midstream inventory levels continuing to be high throughout the first half.
The average realised rough diamond price during the period decreased by 7 percent to $151 per carat from the $162 per carat achieved last year. This was driven by the reduction in the average rough diamond price index and a change in the sales mix in response to weaker conditions.
Analysing the various markets, the company said that demand for rough diamonds was subdued in the first half. In late 2018, US retail results were impacted by stock market volatility and US-China trade tensions which resulted in both retailers and the midstream starting 2019 with higher than anticipated stock levels.
During 2019, demand outside the US continued to be impacted by US-China trade tensions, the Hong-Kong protests and a stronger US dollar, particularly affecting China and the Gulf. In the US, retail store closures and de-stocking have also impacted demand for polished diamonds and, in turn, midstream demand for rough diamonds.
Underlying GDP growth however, remains supportive of consumer demand growth and is expected to bring midstream and retailer stocks back to more normalised levels as we move into 2020, subject to an improving macroeconomic environment.
Rough diamond production during the period decreased by 11 percent to 15.6 million carats from 17.5 million carats the previous year, primarily driven by a reduction in output in South Africa (DBCM) and Botswana (Debswana). As a result of weaker demand experienced in the period, additional production was not ramped up to compensate for Venetia’s transition from open pit to underground.
Reporting on its downstream performance, the company said that De Beers Jewellers has also been adversely affected, primarily in high jewellery, by global trade tensions. The company’s Forevermark brand, which is currently available in around 2,400 retail outlets globally, continued its expansion in Europe with the launch of the brand in Italy.