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De Beers Sales Slump 25% in May
May 21, 2019 11:23 AM
By Joshua Freedman
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RAPAPORT... De Beers’ sales fell to their lowest level in more than a
year and a half, as a slowdown in the Indian manufacturing sector hit rough
demand.
Revenue dropped 25% to $415 million for the fourth sales
cycle of the year, which included last week’s May sight in Botswana, the
company reported Tuesday. Proceeds haven’t been that low since October 2017, when De Beers garnered just $376 million amid weak midstream profitability. This
month’s sales were 29% below the $581 million the miner recorded in April.
Customers rejected a significant percentage of the goods on
offer, as high rough prices have made polished production unprofitable, sources
told Rapaport News. Many clients wanted to buy less, but still made
purchases to keep credit lines with the banks and ensure they meet De Beers’
demand quota, even after the miner reduced that threshold.
Each customer must spend at least $8 million in the current intention-to-offer (ITO) period to be in the running for sightholder status in the next ITO
contract, which begins January 2020, a De Beers spokesperson confirmed. The
miner has lowered the minimum from $15 million, because its 2019 rough-diamond
production will be less than last year, and since the current ITO is three
sights shorter than usual as the company shifts to a calendar-year cycle.
Prices still high
With lower supply, the miner maintained its prices in May, which
exerted greater pressure on midstream profits, sightholders cautioned. Liquidity
challenges have forced cutting firms to reduce polished production, as banks
have tightened lending and are demanding more collateral, a broker explained. Dealers’
average premiums — the margins they can make when they trade De Beers’ rough on
the secondary market — have fallen to around zero, they added.
“It could be that up to 20% or 25% of goods have been
refused,” a sightholder estimated. “If I look at what we refused, we’re talking
boxes where the market value is 10% away from their list prices,” he added to
emphasize his view that De Beers’ rough was overpriced.
De Beers feels many clients don’t want rough prices to fall
because that would force polished prices down, the sightholder explained.
However, sources said many sightholders were upset at the steady pricing,
having hoped for a change of policy in the current ITO period, which began with
last week’s sight.
Mass refusals
“It did upset people a little, as some had hoped for a clean
sheet of paper for the new ITO period,” a broker said. “They were hoping rough
prices would go down to give people a bit of oxygen. If everyone were to leave
their boxes on the table, they would know they have to change something.”
Sightholders are still concerned about losing their supply
next year, and fear banks will reduce their credits lines even further if they
fail to show they’ve bought rough, sight participants noted. “[Sightholders]
need to leave all the goods on the table at Alrosa and [De Beers], but they
can’t,” a rough broker emphasized.
De Beers’ rough-diamond revenues are down 14% to $1.99
billion for the first four sales cycles, according to company reports and
Rapaport records. That reflects weak demand at the start of the year due to the
challenges in India and disappointing US holiday sales, which led to lower
restocking than usual. Alrosa’s rough sales slid 37% to $988 million for the
first quarter, with the Russian miner citing the weak festive season as a key
driver.
“Cycle four saw lower rough-diamond sales against a backdrop
of macroeconomic uncertainty, and as we enter a seasonally slower period for
the industry, with Indian factories closing temporarily for the traditional
holiday period,” De Beers CEO Bruce Cleaver explained.
Image: Steve Millan, a sorter at De Beers’ DTC Botswana operation, measures the size of a rough diamond with a micrometer. (De Beers)
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Tags:
Alrosa, Botswana, Bruce Cleaver, De Beers, ito, Joshua Freedman, mining, Rapaport News, rough, rough demand, Sightholders, Sights
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