De Beers said its rough diamond sales in the first half of the year was $2.62 billion, a 26% drop from last year’s record high. The company says the downturn is due to a global economic slowdown and falling demand in the United States, the world’s biggest market for the cut and polished stones used in jewelry.
The sales report was the first since De Beers went private last month in a $19 billion takeover led by the Oppenheimer family and the miner Anglo American. Each owns 45% of De Beers.
De Beers Managing Director Gary Ralfe said the company aimed to sell $2.2 billion in the second half, bringing total sales for this year to around $4.8 billion, compared with last year’s sale’s of $5.67 billion, Reuters reported.
Ralfe said the company would follow a policy of ”tight distribution,” which analysts interpreted as a signal that the company would be willing to hold back supply of diamonds to balance the market.
”The Diamond Trading Company (DTC) anticipates that the market should begin to show signs of improvement in the second half, though much will depend on the extent of any recovery in economic growth, the further reduction in inventory levels and the relative strength of the U.S. dollar against other diamond consumer market currencies,” De Beers said in a statement. DTC is the marketing arm of De Beers.
The company will also change the assortment of gems it sells in boxes to provide sight-holders with gems that are easier to sell in a depressed market, Ralfe said, but he stopped short of saying De Beers would cut its diamond prices, Reuters reported. ”They (buyers) say a number of our boxes are overpriced… We must just manage our way through this,” said Ralfe.
De Beers said sales in its first five ”sights”-or auctions to its customers-had been limited by the economic slowdown and a downturn in consumer spending on luxury goods.
Falling retail demand had led cutters and polishers-buyers of De Beers rough stones-to build up their stockpiles, Reuters reported.
Debt in the cutting centers was currently around $6 billion, Ralfe told Reuters.
“The retail market in Japan continues to be subdued, but sales in Europe have shown modest increases in local currency terms, particularly in France and the United Kingdom,” the company said.
“Prices in certain categories were under pressure, extended credit terms were demanded, liquidity was tight and profitability reduced,” De Beers said.
Ralfe said that a competition probe by the European Union into plans by De Beers and luxury goods firm Louis Vuitton to jointly develop a chain of upscale jewelry stores should be completed in August.
The European Commission has said it wanted to take a detailed look at the retailing plan after an initial one-month study identified competition concerns, particularly the increased power it may give De Beers in the rough diamond market.
Despite the downturn in rough diamond market, shares in Anglo American rose on the company’s prospects for the second half and the fact that first-half sales beat analysts’ forecasts of $2.4-$2.5 billion, Reuters reported.
Anglo shares in Johannesburg yesterday rose 3.38% and in London the stock was 2.73% higher yesterday, Reuters reported.
Anglo’s shares were also bolstered by gains in world number one platinum producer Angloplat, the other major cash contributor to Anglo’s bottom line. Angloplat gained 2.32%, Reuters reported.