De Beers Rough Prices Decline 5% in 2019

RAPAPORT... A drop in rough-diamond prices and a sales shift tolower-value items weighed on De Beers' profitability in the second half,according to executives at parent company Anglo American. The miner's rough-price index dropped around 5% year onyear for the first nine sights of 2019 amid a market slowdown, Anglo CEO MarkCutifani noted in a call with investors last week. Combined with the weakerproduct mix, the average selling price slipped approximately 20%. "It's been a toughhalf...for diamonds," said finance director Stephen Pearce. "In addition to thegeneral price decrease and general market conditions and softness that we'reseeing, we have also sold a lower mix of diamonds, and with that comes lowerEBITDA [earnings before interest, taxes, depreciation and amortization]margins." These margins will be "substantially lower" than the 20% it reportedfor the first six months, Pearce added. De Beers' rough sales declined 26% to $3.6 billion for the January-to-November period, as an oversupply of rough and polished in the midstreamhurt demand. Rising diamond stockpiles contributed the majority of Anglo's $500million inventory buildup this year, the company said. However, buyers' focus on purchasing cheaper items meansDe Beers now holds relatively high-quality rough inventory that it can sellnext year at better margins, the executive explained. "What we've actually gotthen sitting in stock is a pretty good mix that we'll exit the year-end on,which should have some pretty good EBITDA margins," Pearce continued. The drop in the price index reflects discounts of 4% to8% De Beers offered for lower-quality rough at its June sight, plus a pricereduction of about 5% on a wider range of goods in November. That latest moveimproved profitability for sightholders, resulting in steady demand at lastweek's December sight, the 10th and final sales cycle of the year, a roughbroker told Rapaport News on condition of anonymity. The miner leftprices unchanged for the sale, which ended Friday, the broker added. For December, De Beers also reverted to its standardlimitations on sightholders rejecting goods, ending several months of unprecedentedconcessions designed to ease the midstream diamond glut. "We've certainlyseen a little bit of improvement later in the year," Cutifani said."The first couple of sights in the new year will be...a better point [to assess]how that market is going. We've seen some encouragement, but I think it's stilla little too early to bank that in any more of a substantive sense." De Beers is scheduled to announce the value of theDecember sales cycle this Wednesday, and will release its annual financialresults on February 20. Image: Rough-diamond sorting. (De Beers)