De Beers brought a tumultuous 2019 to a close on a positive note, as provisional rough diamond sales of $425 million at their Cycle 10 sight represents their highest earnings in seven months since the April sight and the fourth straight sight with increasing sales. While it does not quite match the $544 million earned at the final sight of 2018, it does demonstrate that demand for rough is stabilizing - though their buyers did not really have much say in the matter, as the miner had withdrawn the additional flexibility provided to sightholders since July. However, De Beers reportedly maintained the roughly 5% reduction in average prices they instituted in November, which benefits midstream traders and manufacturers.
Bruce Cleaver, CEO, De Beers Group, confirmed increasing demand was the conclusion to be drawn from the December sale: "Following continued polished diamond price stability in the lead up to the final sales cycle of the year, we saw further signs of steady demand for rough diamonds during Sight 10." Still, this conclusion is not entirely unequivocal, as the opportunity to leave goods on the table was eliminated by De Beers' return to normal trading provisions: gone was the freedom to refuse up to 50% of purchases or delay them until a later date, as was De Beers willingness to keep their buyback policy at 20% (or even 30%) compared to the standard 10% - a policy they had implemented to relieve pressure on buyers in an already-saturated market. Add to this the fact that De Beers is currently calculating their buyers' allocations for the new intention-to-offer (ITO) period, which it bases on past purchasing records, and the pressure to buy is clear; if buyers wish to maintain their supply in 2020, they need to prove their level of demand now.
While the last two sights have provided positive indicators going forward, De Beers has seen its rough-diamond sales decline 25% on the year, to $4.04 billion from $5.39 billion in 2018. The price index has fallen and the product mix was not as strong as usual. As CEO of parent company Anglo American, Mark Cutifani, recently said during an Investor Update call, "Obviously it’s been a tough market [for diamonds]. Prices on a full year basis are down around 20%. The price index is down about 5% and the mix is down in terms of quality, by price, about 15%." He also expressed caution about too much optimism. "We’ve certainly seen a little bit of improvement later in the year. I think the best thing to say is the first couple of sights in the New Year will be a better point [to determine] how [the diamond] market is going. We’ve seen some encouragement, but I think it’s still a little too early to bank that in any more of a substantive sense."
Nonetheless, as De Beers' and rival Alrosa's last two sales demonstrate, a restoration of the balance between demand and supply seems to be underway. Alrosa has also seen increased rough sales in the past two months and the Russian miner's November sale was also its largest since April. It might do the industry well to err on the side of a little optimism as we head toward the New Year.