De Beers Rough Prices Decline 5% in 2019

RAPAPORT… 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.

Image: Rough-diamond sorting. (De Beers)