De Beers' Annual Report Reveals Full Extent of 2015 Dramatic Diamond Downturn

Rough Market
16/02/2016 10:57

Anglo American/De Beers has released its 2015 annual figures, and a 5% increase in the average realised diamond price was not enough to offset weaker rough diamond demand, leading to total De Beers revenue falling 34% to $4.7 billion (2014: $7.1 billion). De Beers reports that this was, "mainly driven by lower rough diamond sales, which declined by 36% to $4.1 billion. This was due to a 39% reduction in consolidated sales volumes to 19.9 million carats (2014: 32.7 million cts)." De Beers’ underlying EBIT decreased by 58% to $571 million (2014: $1,363 million). "This was the result of weaker rough diamond demand and lower revenue, offset in part by tight operating cost control and favourable exchange rates." They note that, "The 5% increase in average realised diamond prices to $207/ct (2014: $198/ct) reflected a stronger product mix, despite an 8% lower average rough price index for the period. From the final Sight in 2014 to the final Sight in 2015, the De Beers rough price index declined by 15%." 

On the markets

"Global consumer demand for diamond jewellery in 2015 is expected to have declined marginally in US dollar terms from the record levels of 2014, as growth in the US was offset by the economic slowdown in China and the strength of the dollar. The US, the largest market for polished diamonds at approximately 45% of global market value, again saw the strongest growth, albeit at a slower rate than in 2014. Demand for diamond jewellery by Chinese consumers was stable, while in India, diamond jewelry demand contracted in local currency terms."

On mining and manufacturing

"Rough diamond production decreased by 12% to 28.7 million carats (2014: 32.6 million cts) as De Beers reduced production in response to prevailing trading conditions. Debswana’s production decreased by 16% to 20.4 million carats, driven by a reduction in tailings production at Jwaneng, combined with the bringing forward of planned maintenance at both Jwaneng and Orapa. In South Africa, production was in line with 2014, though below planned 2015 production. Production at Namdeb Holdings decreased by 6%, while in Canada, production was in line with the prior year as lower grades at both Snap Lake and Victor were offset by improved throughput.

Outlook 

"De Beers expects the US market to remain the main driver of growth in consumer demand in 2016. The extent of global growth will, however, be dependent upon a number of macro-economic factors, including the strength of the dollar and economic performance in China and its impact worldwide. Longer term, the sector is likely to continue to see benefit from a continuing rise in the world’s middle classes in emerging markets, particularly in China and India. Rough diamond demand in 2016 will be dependent upon consumer demand for diamond jewelry and the resultant levels of restocking required by retailers and, consequently, the midstream. Diamond production (on a 100% basis) for 2016 is forecast to be in the range of 26-28 million carats, subject to trading conditions."

The full financial report is available here.