De Beers reported that rough diamond production in the first half of 2017 had, in a year-on-year comparison, increased by 21 percent to 16.1 million carats in the first half of 2017. Despite this, the miner said, revenue for the period decreased by 4 percent to $3.1 billion.
The lower revenue was due to the normalisation of buying after the strong midstream restocking in H1 2016, as well as stronger demand for lower-value goods in Q1 2017, following a recovery from the initial impact of India’s demonetisation programme in late 2016. The lower-value mix was compensated in part by a higher average rough price index, which was 4 percent higher when compared with H1 2016.
The average realised rough diamond price decreased by 12 percent to $156 per carat (it was $177 per carat in H1 2016), partially offset by a 7 percent increase in consolidated sales volumes to 18.4 million carats. This is in line with the higher production forecast for 2017, reflecting stable trading conditions as well as the contribution from the ramp-up of Gahcho Kué in Canada.
Underlying EBITDA increased by 3 percent to $786 million, primarily attributable to savings resulting from the closure of Snap Lake and a continued efficiency drive across the group. Efficiencies contributed to a 3 percent decrease in unit costs despite unfavourable exchange rates and an increasing proportion of waste mining costs being expensed rather than capitalised (due to declining strip ratio) at Venetia in South Africa. In addition, underlying EBITDA benefited from a stronger contribution from Element Six.
Preliminary consumer demand data for diamond jewellery for the start of 2017 showed continued growth in the US and slight improvements in China in local currency. In India, retailer sentiment improved due to a return to more normal trading conditions following the government’s demonetisation programme. Underlying US results reflected the broader changes in consumer behaviour affecting the overall US retail environment, with growth in the independent jewellers’ sector contrasting with some weakness from large chains.
Sentiment in the midstream remains positive following a reasonable Q4 2016 retail season, with evidence of Chinese retailers restocking and demonetisation in India having less impact than anticipated. This has supported good demand for De Beers’ rough diamonds. Spot polished prices remained broadly flat in H1 2017.
Outlook
Macro-economic conditions underpinning consumer demand for polished diamonds globally remain supportive of marginal demand growth in 2017. The extent of global growth, however, will be dependent upon a number of macro-economic factors, including the effect of US and China government policies on exchange-rate movements. Correspondingly, midstream demand for rough diamonds is expected to depend on the strength of different markets’ restocking requirements.
Forecast diamond production (on a 100% basis) for 2017 remains unchanged and is expected to be in the range of 31-33 million carats, subject to trading conditions.
https://www.gemkonnect.com/news/de-beers-h1-revenue-4-31b-due-demand-lower-value-goods