Market Recession Leads De Beers to Lower Production Estimate by 1Mct in 2020

Mining and Exploration
11/12/2019 12:58

Having already revised their 2019 full-year production guidance downwards to ~31 million carats in response to a backlog of polished diamond inventories in the midstream and weaker trading conditions, De Beers' parent company Anglo American yesterday announced it is lowering its diamond production estimate by a million carats in 2020 and 2021. Citing "challenging market conditions," Anglo American notes that De Beers' year-to-date revenues have fallen 26% since 2018, due to lower volumes of sales, a weaker product mix and a softening price index.

Anglo American's revised estimate for De Beers output in 2020 now sits between 32 million and 34 million carats, compared to its earlier outlook of 33 million to 35 million carats. Its 2021 production is forecast to increase to between 34 million and 36 million carats, as compared to their previous projection of 35 million to 37 million carats. As a Bain & Company and AWDC report published today makes clear, overproduction in 2017, among other factors, created short-term challenges that have caused mining and midstream revenues to fall as much as 25% in 2019, as near record-high rough diamond production was not matched by increasing demand for polished diamonds, leading to higher inventory levels that generated a ripple effect through the supply chain. That excess inventory, being held by manufacturers, has been a burden on the entire market, with Bain's report predicting a slight improvement in 2020. However, the consultancy does not expect a reestablishment of balance and growth until 2021.

De Beers' rough diamond production in the third quarter of 2019 declined 14% to 7.4 million carats, with significant reductions in South Africa and Canada which the miner says was planned. "In addition," they noted at the time, "we continue to produce to weaker market demand due to macro-economic uncertainty as well as continued midstream weakness." For the year to date, De Beers ouput is lagging 12% behind the first nine months of 2018, falling to 23 million carats from 26 million carats. Q3 output fell 3% from Q2 levels, when De Beers lowered its rough diamond production 14% to 7.7 million carats and revised its 2019 guidance. Anglo American expects inventory for the entire group to grow by around $500 million in 2019, with De Beers accounting for most of that increase. This follows the company’s decision to offer unprecedented concessions to sightholders in the second half of the year to enable them to buy less rough and reduce their stockpiles.