De Beers Can Start Looking at Rough Price Increase

Gaborone: De Beers intended pushing diamond production levels back to “more normal” levels during 2017, but decisions on when to increase rough diamond prices would be driven by polished diamond price levels which were currently “pretty flat”.

That’s according to De Beers CFO, Nimesh Patel, who told Miningmx “… as polished prices go up we can start to look at pushing up rough prices”.

De Beers cut rough diamond prices at the start of 2016 after chopping back heavily on sales volumes during 2015 in response to the poor state of the rough diamond market.

Patel said the overall rough “index price” was down around 13% during 2016, but that was partly offset by a stronger mix in the product sold so that De Beers’ realised price was only down around 10% to $187 per carat.

The group managed to reduce production costs by 19% to $67/carat from $83/carat in 2015. The cheapest producer by far was Debswana whose huge Botswana mines churned out diamonds at a unit cost of just $26/carat.

The group trimmed production to 27.3 million carats (2015: 28.7 million carats), but boosted sales volumes nearly 50% to 29.9 million carats (19.9 million carats) as the markets and buyer sentiment improved.

De Beers is forecasting production for 2017 in a range between 31 million carats and 33 million carats which takes production back to the “… more normal levels seen over the last few years”, according to Patel.

He declined to provide the current level of stocks still held by De Beers but commented the group was now “very comfortable” with stock levels.

Overall, De Beers sold $6.1bn worth of rough diamonds last year – 30% up on the 2015 level of $4.7bn – and increased underlying EBITDA (earnings before interest, tax, depreciation and amortisation) to $1.4bn ($990m).

Looking at the 2017 sales picture in more detail, Patel commented that the US remained De Beers most important market accounting for around 45% of global diamond demand which meant that the impact of policies implemented by the President Donald Trump administration could be material to diamond sales and revenues.

Patel said that if Trump’s policies on tax cuts and greater investment in infrastructure succeeded, then it was likely this would lead to an increase in personal disposal income in the US.

“Higher levels of disposal income should be beneficial for diamond demand and it’s possible that Trump’s policies could provide something a tail wind for diamond sales over the next years,” he said.

On the other hand, if the US dollar strengthened that would have negative consequences for De Beers revenue levels in the world’s other major markets for diamonds.

Patel pointed out that while a stronger US dollar would not affect US diamond sales – because diamonds were traditionally priced in dollars – it would reduce the dollar revenues earned from countries with weaker currencies when those sales were translated from domestic currencies into dollars.