COVID-19 interrupts 2020 diamond recovery as De Beers resorts to more sale deferments

DE BEERS will allow polishers and cutters to defer purchases of rough diamonds in order to help manage a decline in demand owing to COVID-19.

Bruce Cleaver, CEO of De Beers, said today the company “recognised the impact of COVID-19 Coronavirus on customers focused on supplying the Chinese market”. It had allowed for “additional flexibility to enable customers to defer allocations,” he said.

Cleaver’s comments came as the Anglo American company reported a disappointing slump in second cycle (sight) sales for 2020 provisionally put at $355m. This compares to $496m in sales year-on-year and is a third lower than $551m in sales for the first cycle.

The decline in sales should “not come as a surprise to the market” given the disruption caused by COVID-19,” said Morgan Stanley in a report. It has forecast diamond sales for 2020 to be about $4.31bn, slightly higher than last year’s $4,04bn, it said. This would translate into EBITDA earnings for 2020 from diamonds of $929m from $558m in 2019.

Mark Cutifani, CEO of Anglo American, said in February at the firm’s year-end results presentation that the company would take a wait-and-see approach regarding the impact of COVID-19 before changing its expectations for diamond sales.

“China is about 15% of total demand for diamonds,” said Cutifani. “There are not as many people walking around jewellery shops in China and Hong Kong so it will have an impact.

“We have had a good US selling season and sentiment seems better in the first sight. At this stage, we don’t see anything that we should adjust our guidance, and need to see for a couple of months before saying more,” he said.

COVID-19 does, however, complicate an already somewhat more complex year ahead for De Beers which is said to be undertaking a review of how it sells diamonds to the so-called midstream: diamond cutters and polishers.

According to a Bloomberg News article last year, De Beers set out details of a proposed new system at its most recent ‘sight’ or sales meeting, held in Gaborone in which cutters and polishers would be divided into three categories consisting of dealers, manufacturers and integrated retailers. In so doing, De Beers hoped to sell its diamonds to buyers most suited to delivering the item to the consumer.

De Beers reported 50% lower profits of $558m for the 2019 financial year – a hefty decline from its 10-year profit peak of $1.8bn in 2014. Anglo American owns 85% of De Beers.