In the face of weak market demand, solid as diamonds can not resist. On December 18th De Beers, the diamond giant, announced that it expected sales of $425m for the final sales cycle of the year. That means the company’s full-year sales will fall 25.9 percent year-on-year to $4 billion, down nearly $1.4 billion from the year ago. At the heart of the diamond business is the control of diamond prices, and the oversupply of rough diamonds in recent years, the excessive supply of polished diamonds and falling prices have affected the entire industrial chain, from mining, cutting and polishing to trading diamonds, putting pressure on De Beers, the world’s largest diamond miner.
Photo credit: De Beers.com
De Beers reported a 17 per cent drop in first-half revenue to $2.6bn in its interim results in July. Slowing consumer demand growth and challenging market conditions were the main reasons for the decline in their business profits.
De Beers’ U.S. retail sales performance at the end of 2018 was hit by stock market volatility and trade tensions, leading retailers and middlemen to higher-than-expected inventory levels in 2019. The closure and destocking of the company’s U.S. retail stores reduced the demand for polished diamonds, which in turn affected the volume of rough diamonds.
De Beers cut diamond prices by about 5 percent in October, helped by continued sales slumps, and has been investing more in advertising to boost consumer demand.
With these moves, De Beers’ performance rose slightly from the previous session to $425 million in the last sales cycle of the year, but was still a far cry from the $544 million a year earlier.
“The price of finished diamonds has remained stable until the final sales cycle this year,” De Beers chief executive Bruce Cleaver said in the announcement. In the 10th sales cycle, we saw signs of steady demand for rough.”
In fact, De Beers’s struggle to survive is only a microcosm of the global diamond industry’s recession crisis.
The first is the decline in market demand for diamonds. Global demand for polished diamonds and rough has declined, according to the Global Diamond Industry Annual Report, released this month by Bain, a U.S. management consulting firm, and the Antwerp World Diamond Center. Combined with the depreciation of the dollar, global diamond sales will fall 2% year-on-year in 2019.
Sales of rough diamonds were particularly bad, falling by 25 per cent, and sales of polished diamonds were not encouraging.
Bain said sales of polished diamonds were expected to fall by 10 to 15 per cent by the end of 2019 due to slowing global demand for diamond jewelry, reduced diamond content in jewelry designs, optimized inventories at major retailers and reduced available financing for mid-stream companies.
In addition, the excess of diamond mining has also led to a market price dive.
The Global Diamond Industry Annual Report notes that the diamond industry increased diamond mining by 26 million carats in 2017, the largest increase since 1986, but that excess production affected the entire value chain, and in the second half of 2018, demand for rough stones began to stagnate, leading to inventory backlogs and prices.
Oversupply, falling prices and falling consumer demand have left the entire diamond industry chain in trouble, and big companies are trying to find a way out of controlling diamond production.
De Beers said in a statement earlier this month that it expected diamond production to be 1 million fewer in 2020 and 2021 than previously expected.
In early August, the company also announced that for small rough diamonds weighing less than 3/4 carats, diamond buyers could buy only half of the agreed amount and sell back some of the rough to De Beers at a low price.
Previously, De Beers held 10 orders a year in Botswana, and what kind of diamonds buyers can purchase on site and what prices they receive depend on the agreement that De Beers and the buyer sit in the annual distribution.
According to Bain, global diamond production fell 3 percent to 147 million carats in 2018, with full-year production expected to fall another 4 percent in 2019 and the supply of natural diamonds falling sharply from 2021 to 8 percent a year.
But Bain also says the diamond market has experienced only four recessions in the past 50 years, in addition to the current downturn. Historically, markets usually return to pre-crisis levels within a year or two.