There is no doubt that the diamond industry is somewhat stuck in the murky waters again, a development that has brought about sad memories of 2008, when gem prices dropped by about 60 percent due to the global economic downturn.
The euro debt crisis, sluggish economic growth in the United States, low demand in China and the weakening of the Indian Rupee against the US dollar are some of the factors contributing to the current crisis in the global diamond industry.
Trading and production figures recently released by De Beers were not inspiring and served as a pointer to an industry in trouble.
Everything is falling
The “injured” diamond giant reported that its profit before finance charges and taxation during the first six months of the year fell to $502 million down from $1.02 billion realised a year earlier.
Its sales also tumbled to $3.3 billion from $3.9 billion in the first half a year ago, while diamond production weakened to 13.4 million carats due to continued focus on repairs and maintenance.
De Beers, which is set to be controlled by Anglo American after agreeing in November last year to buy out the Oppenheimer family’s 40 percent stake, said that the remainder of 2012 would remain challenging.
“De Beers expects trading conditions in the mid-stream to remain challenging during the second half of 2012,” it said in a statement.
“De Beers will continue to produce in line with sightholder demand and invest in stimulating and capturing consumer demand growth.”
The group was expecting to produce 28 to 30 million carats for the full year, a drop from 2011 levels.
De Beers also allowed its sightholders to defer purchase of as much as half their diamond allocation until March 2013.
“If (customers) can’t afford to buy, we have to adapt. This is why we have taken the extraordinary decision to defer up to 50 percent of (sightholders’ allocation) up to March ,” De Beers chief executive Philippe Mellier told reporters.
Diamdel, which sells about 10 percent of De Beers production to sightholders and non-sightholders through its online auctions, was quoted by Rapaport News as saying that buyer participation eased by about 10 percent in its latest round of rough diamond auctions.
“The reduced demand, coupled with the fact that buyers attending our spot sales have number of alternative purchasing opportunities, has led to a softening in prices,” Diamdel’s chief executive Neil Ventura said.
Mothballed and more decline
One of De Beers’ sightholders in Botswana is said to have mothballed its diamond jewelry manufacturing plant, less than a year after starting operations, citing unattainable raw material costs.
It was the second Diamond Trading Company Botswana (DTCB) sightholder, after Shrenuj Botswana, to further beneficiate the precious stones in the southern African country.
BHP Billiton, which announced in December 2011 plans to divest from the diamond industry, said that its production fell 28 percent year on year to 413,000 carats in the fourth fiscal quarter that ended on June 30 2012.
Production for the fiscal year declined 29 percent to 1.784 million carats.
It said that output at the Ekati mine in Canada was expected to remain constrained for now as operations extract lower grade material.
Israel crying as well
Israel’s polished diamond exports also fell 19 percent year on year to $3.26 billion during the first half of 2012.
Diamond controller Shmuel Mordechai said the decline was caused by weak global economic trends and a crisis that affected the Israel Diamond Exchange.
The industry was accused of tax evasion and money laundering.
Israel’s rough imports declined 19 percent to $1.99 billion during the first six months of the year while rough exports eased 33 percent to $1.52 billion.
Not all gloom and doom
Meanwhile, industry players expected markets to revive once the currency stabilises and fresh demand “pops up” from the international market around Christmas festivals.
Already there are reports that the Indian rupee will not fall further in the short-term.
The rupee had declined by 25 percent through the year to June 30 and even beat losses experienced by the Euro and British pound currencies.
Rio Tinto – with diamond mines in Australia, Canada and Zimbabwe – said that its group diamond production leaped 18 percent year on year to 6.167 million carats during the first half of 2012.
It said output in the second quarter of the year also went up by 3 percent year on year to 2.808 million carats.
The miner, which said last March that it was considering divesting from its diamond business, was targeting a full year production of 14.6 million carats, an increase of 25 percent from 2011.
Namakwa Diamonds also realised revenues of about $4.2 million from its third sale of Kao rough diamonds in Antwerp, with achieved prices 3.4 percent higher than initial management estimates.
The miner, which offered 51 lots, totaling 14,495 carats said that the Lesotho diamonds were sold at an average price of $286 per carat, with an average diamond size of 0.36cts.
Our third tender in Antwerp, like the first two, achieved a 100 per cent sell-through and prices ahead of initial expectations even in today’s challenging markets,” said Namakwa Diamonds chief executive Theo Botoulas.
He said the company had since January this year sold a total of 87,011 carats from Kao in eight tenders, generating $24.6 million in revenues.
Russia’s diamond producer ALROSA – regarded as the world leading diamond producer by volume – has not yet released its first half results.
Reports carried out by the Russian media last week citing data from Yakutia’s Ministry for Economic and Industrial Development were conflicting and therefore cannot be treated as factual and a true reflection of the company’s operations during the first half of the year.
The industry will have to wait until ALROSA releases its data to tell if another diamond giant was in the doldrums.
However, ALROSA reported earlier this year that it had recorded a net profit of $285 million for the first three months of the year, which was more than the initial target of $159 million.
Its diamond sales during the period reached $1.2 billion compared to $950 million accrued a year earlier.
So, by and large it is safe to conclude that the diamond market is struggling with buyers less enthusiastic as they were during the same period last year to expend their scarce resources on gems.
However, there was still light at the end of the tunnel despite the dark period the industry was experiencing.
History has shown that buyers often become “loose” with their wallets during the festive season and one only hopes that will be perpetuated this year.
If that doesn’t happen then we should brace ourselves for a prolonged depression.