Anglo’s Cutifani says De Beers will treat fragile diamond recovery in 2021 with kid gloves

Mark Cutifani, CEO, Anglo American

ANGLO American CEO, Mark Cutifani, is anticipating markedly better trading conditions in the diamond market from 2021 which could last for up to three years, but he stressed De Beers had no intention of pushing excess sales of rough diamonds into the market.

Speaking on an investor update conference call for the second half of the group’s financial year to end-December, Cutifani commented: “We are being prudent in our forecasts and we are certainly not going to be a contributor to overstocking in the industry”.

An appendix to the conference documentation detailing the group’s production outlook revealed that Anglo has cut its diamond production forecasts from previous estimates for the 2021 and 2022 financial years and maintained the lower levels in a new forecast for the 2023 financial year.

Anglo has maintained its production forecast for the current 2020 financial year at 26 million carats, but has cut 2021 to  between 33m and 35m carats (previous estimate 34m to 36m carats), and also reduced the 2022 estimate to between 30m and 33m carats (33m to 35m carats). The newly published estimate for 2023  is 30m to 33m carats.

Cutifani said the optimistic market outlook was based on a reduction in rough diamond supply as well as a recovery in demand from the diamond trade following sharp de-stocking of diamonds from the retail pipeline during 2018 and 2019 in the US in particular.

He said some 30m carats of annual diamond production capacity had been taken off-line because the impact of Covid-19 plus the closure of the Argyle diamond mine in Australia.  Cutifani commented he believed some two-thirds of that production “will not come back”.

“We think the supply situation will be the key and we are going to watch that very carefully. We will not push more production out there unless we are comfortable that prices are going to increase.

“Current price levels in my view will put additional pressure on producers and you will see production fall away at these sort of levels because many parts of the industry cannot be supported at these prices.

“I am expecting prices to improve just through demand but I think the prudence we have shown in that (production) forecast is appropriate. I am hoping we will do a lot better – and we can if the market is there – but we just want to make sure we are on the right side of these conversations and we see a recovery in prices which we think is critical. We are hopeful but we don’t want to get ahead of ourselves.”

Commenting on general diamond market conditions Cutifani said “… demand in China has been very good on the jewellery side and the US has been solid given they are still in the middle of Covid-19.

“During 2018 and 2019, we saw the most significant flush-out of stocks since 2008 when some 40m carats came out into the market from (retail) groups that were closing stores and switching to on-line platforms where they did not need to carry the stocks.

“When you see a 30m carat contraction in supply most of which is structural and you still have demand that looks pretty strong … (then) I think the industry is shaping up to be in a much better and stronger position than I have seen since 2008.

“But you have to wait to see that come through and that’s why we are being appropriately prudent. I am quietly confident that De Beers is going to see a good two or three years.”