De Beers Profit Falls Amid Market Slump

RAPAPORT... De Beers' profit dropped in the first half of the year asweak demand at the trade and consumer levels impacted diamond prices, thecompany said Thursday. The rough market was subdued due to high inventories inboth the midstream and the retail sector, as well as a slowdown in growth ofconsumer demand, the miner explained. The US-China tariff dispute, protests inHong Kong and the strong US dollar hit retail performances outside the US,especially in China and the Gulf region. In the US, retailers' store closuresand reduction of stocks weighed on polished demand, creating a further negativeeffect for the rough business, De Beers added. Earnings before interest, taxes, depreciationand amortization (EBITDA) slumped 27% to $518 million as a result of the impacton margins, the miner reported. Total underlying earnings fell 7% to $187million. Revenue slid 17% to $2.65 billion, with rough-diamond sales decreasing 21% to $2.3 billion. Other revenues came from businesses such as ElementSix, its industrial-diamond unit, and De Beers Jewellers, its high-end retailchain. "The lower rough-diamond sales reflected higher-than-expectedpolished stocks at retailers and the midstream at the beginning of 2019, withoverall midstream inventory levels continuing to be high throughout the firsthalf," De Beers noted. De Beers' rough-price index, measuring prices on alike-for-like basis, fell 4% for the period versus a year earlier. The average selling price declined 7% to $151per carat, influenced by a change in the sales mix caused by the weakerconditions. The company expects those challenges to continue in theshort term, but also foresees an improvement as the industry reduces itsinventory and consumer demand rises. "Underlying GDP [gross domestic product] growth remainssupportive of consumer-demand growth, and is expected to bring midstream andretailer stocks back to more normalized levels as we move into 2020, subject toan improving macroeconomic environment," De Beers said. Last week, De Beers reduced its production outlook followinglow demand, forecasting output of 31 million carats this year, whereas it had previouslyexpected to recover 31 million to 33 million carats. Production fell 11% to15.6 million carats during the first half, as the company chose not to increasemining levels at other deposits to compensate for a lull at the Venetia mine.Output at the site in South Africa has fallen amid its transition from open-pitto underground operations. Image: Rough diamonds with sorting labels at the De Beers Sightholder Sales South Africa building in Kimberley, South Africa. (De Beers/Ben Perry/Armoury Films)