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De Beers Lowers 2020 Production Forecast
Dec 11, 2019 5:44 AM
By Rapaport News
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RAPAPORT... 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.
Image: De Beers’ Jwaneng mine in Botswana. (Ben Perry/Armoury Films/De Beers)
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Tags:
Anglo American, bain, Bain & Company, De Beers, Manufacturing, mining, oversupply, Production, Rapaport News, rough, Rough Diamonds, rough market
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