De Beers' H1 Earnings Up Despite Drop in Production, Lower Diamond Prices

Rough Market
28/07/2016 14:09

According to a press release from Anglo American, De Beers' underlying EBIT (earnings before interest and taxes) for the first half of 2016 increased by 2% to $585 million (H1 2015: $576 million). "This was the result of higher revenues from stronger rough diamond demand, tight operating cost control and favorable exchange rates," reads the statement. Consolidated unit costs declined from $82/carat to $65/carat as a result of cost-saving programs and portfolio changes, supported by favorable exchange rate movements. Total revenue increased by 8% to $3.3 billion (H1 2015: $3.0 billion), mainly driven by an 11% increase in rough diamond sales, at  $3.1 billion. This was due to a 29% increase in consolidated sales volumes to 17.2 million carats (H1 2015: 13.3 million carats), partly offset by a 14% decrease in average realized rough diamond prices to $177/carat (H1 2015: $206/carat) which reflected the 16% lower average rough price index for the period. Rough diamond production decreased by 15% to 13.3 million carats (H1 2015: 15.6 million carats), reflecting the decision to reduce production in response to prevailing trading conditions in H2 2015.

Concerning the market, Anglo American reports that during H1 2016, the US market showed positive growth overall, while the Chinese market was broadly stable. Japan demonstrated modest growth in local currency, whereas consumer demand in India was hampered by a month-long jewelers’ strike in March 2016 against new government regulations. They write that, "sentiment in the midstream (manufacturers) improved during the period under review, as good year-end holiday sales, particularly in the US, necessitated retailer inventory restocking, which enabled the cutting centres to rebalance their polished stock." 

Looking forward, "Macro-economic conditions underpinning consumer demand for diamonds remain broadly stable in aggregate, but with persistent downside risks looking into H2 2016 (including recent social and political instability) ... In the midstream, caution in rough diamond buying is expected to prevail, as the supplies bought by diamantaires in H1 2016 are gradually converted into polished. De Beers forecast for diamond production (on a 100% basis) in 2016 remains unchanged and is expected to be in the range of 26-28 million carats.