De Beers Notes Challenging Diamond Market
By De Beers
The following summary of De Beers first half results were forwarded to Rapaport News by the company:
Challenging first half against headwinds, but solid operating performance
• Operating profit reflected softer rough demand as expected. Focused on reducing unit costs and improving operational efficiency.
• Utilized operational flexibility at Venetia and Jwaneng tailings plants to reduce production marginally in response to softer trading conditions.
• Recently signed agreement in principle on the terms of a new 10-year sales agreement with Namibia providing long-term security of supply for our customers.
• Continued strong growth of Forevermark, which is now available in more than 1,600 retail stores in 36 markets – 13 percent increase since the first half of 2014.
Midstream conditions are challenging, but consumer demand forecast to remain stable
• The diamond industry began to face pressures in the fourth quarter of 2014 as consumer demand growth was softer than expected and the GIA backlog was cleared — this led to abnormally high pipeline inventories of polished diamonds at the start of 2015.
• Growth in consumer demand has also been constrained in the first half of 2015 due to weakness in the macroeconomic environment and U.S. dollar strength impacting demand in non-dollar denominated areas.
• When combined with the ongoing liquidity/profitability challenges faced in the midstream and the concern over recent bankruptcies in India, this resulted in significant indigestion throughout the pipeline.
• Expect global diamond jewelry demand to remain stable in 2015: while U.S. likely to grow moderately this year, and other major markets expected to show growth in local currency, the strength of the U.S. dollar and lower Chinese diamond jewelry demand are likely to offset this.
Good progress on our investment projects across the pipeline as market fundamentals remain strong.
• Around $3 billion upstream investment projects progressing well and remaining on track. New offshore exploration vessel for Debmarine Namibia under construction and set for commission in 2017.
• $10 million Forevermark facility opened in Surat provides greater grading and inscription capacity, while our investment in Synova will enable our customers to access better technology to increase efficiency.
• Demand growth over the mid- to long-term set to outpace production growth, while projected growth of middle classes should see continued global diamond growth for diamonds