Diamonds in ‘downward spiral’ as De Beers sales falter again

ROUGH diamond sales fell again for De Beers with no signs of the much desired diamond market recovery on the way.

Al Cook, De Beers CEO said that while a recent conference demonstrated a resurgence in retailer interest in diamonds, China continued to exert downward market pressure.

“We continue to expect a protracted U-shaped recovery in demand,” said Cook on Wednesday. “The northern summer is generally a quieter period for rough diamond sales, and this was reflected in our cycle 5 sales,” he added.

Provisional sales of rough diamonds for the period totalled $315m compared to $383m in the fourth cycle. Putting the state of the market into starker relief is the 31% year-on-year decline in fifth cycle sales.

Despite’s Cook’s upbeat comments on the retail end of the market, analysts at Morgan Stanley said polished natural diamonds were in “a downward spiral”.

They said in a report earlier this month there was “little evidence that prices are at an inflection point”. Signet, the world’s largest diamond jewellery retailer commented earlier that first quarter same-stores fell 9% year-on-year.

“Macro pressures continue to weigh on consumer sentiment, including in the US – the world’s biggest diamond market,” the bank added. While Signet is expecting a positive same-store sales inflection in late 2024, Morgan Stanley said it was “yet to see pointers that the tide is about to turn”.

Natural stone prices have fallen 19% year-on-year, the bank said.

De Beers, which comprises between 25% and 30% of global diamond output by volume has cut 2024 production guidance from 29 to 32 million carats to 26 to 29 million carats, in an effort to rebalance the market.

In this context, Anglo American is hoping to sell De Beers in terms of a group restructuring announced by CEO Duncan Wanblad in May.

Analysts quoted in an article for the Financial Mail said that the sale of De Beers was perhaps the most challenging aspect of the entire restructure.

“We believe there is a good chance that De Beers is still in Anglo American come 2026,” said Ben Davis, an analyst for investment bank Liberum.

Given continued inventories in the midstream, the cutters and polishers, it won’t be until 2025 at the earliest that diamond prices improve meaningfully, said Marina Calero, an analyst for Canadian investment bank, RBC Capital Markets.

Morgan Stanley analysts said a convincing inflection may “stretch well into 2025, leaving the transaction’s timing at the whims of the market”.

De Beers is a complex business to unravel. Structurally it is complicated, given its joint ventures with Botswana principally, as well as Namibia. “Plus it’s a hybrid mining/luxury company; it’s just too unique a business for a sale to be easy,” said Paul Zimnisky, a diamond analyst.

“That said, I think the best suitor would be someone that has deep pockets and can invest a sufficient amount in the business for the long term and someone like an LVMH [the French luxury group] could qualify in this way,” said Zimnisky.

“But I wouldn’t hold my breath.”