De Beers Reports Record Rough Diamond Sales

Rough diamonds image courtesy of De Beers Group

De Beers Group said Tuesday that sales of rough diamonds during the first half of 2011 through the Diamond Trading Company (the rough diamond distribution arm of the De Beers) increased 33 percent, year-over-year, to $3.5 billion This is the highest ever sales figure recorded for the first half of the year, buoyed by continued retail demand from the Indian and Chinese consumer markets and stronger than expected demand in America.

The company, which produces more than a third of the world’s rough diamonds, also reported record EBITDA of almost $1.2 billion, a 55 percent increase over the first the first half of 2010, reflecting the impact of “excellent” price growth during the period ended June 30. It predicts continued demand for the remainder of 2011.

“Sales during the period have been exceptional, driven mainly by continued growth in the Middle East, Indian and Asian retail markets and their impact on rough price growth,” De Beers said in a statement. Despite the ongoing turmoil with the global economy, we are encouraged by the continued strong growth in price and demand during the first six months of 2011. De Beers is confident that the exceptional growth in retail markets in India and Asia will continue to drive demand for diamonds.”

The company also said that reports from the recent jewelry tradeshows in Las Vegas “indicate that the all-important Christmas season in the U.S., and Diwali, are set to be strong.”

At a De Beers board meeting in Luxembourg on July 19, Philippe Mellier was appointed CEO of the De Beers Group. The company announced in May that he was being appointed. In the same meeting, Stuart Brown, CFO, said he would be resigning from the board, which will take effect at the end of July. He was with Be Beers for almost 20 years.

De Beers—which owns mines in South Africa, Botswana, Canada and Namibia—said it has continued to focus on efficiency improvements and on maintaining a lower sustainable level of overhead base, which it says has helped the bottom line. In the first six months of 2011, De Beers’ production totaled 15.53 million carats, an increase of 100,000 carats over the same period in 2010.

In its retail activities for the first-half of the year, Forevermark, the De Beers Group owned diamond brand, continues to expand into the retail markets of China, Hong Kong and Japan, and has recently launched in India, Singapore and the Caribbean. The brand is now available in a small number of stores in the U.S., with further expansion planned later this year. During the same period, De Beers Diamond Jewellers (De Beers’ joint venture with LVMH) announced the launch of the brand in China with the opening of its first mainland store in Beijing, its first store in Kazakhstan in Almaty and a new store in Dubai. The company will continue to expand in 2011 with in China and Hong Kong.
 
Element Six, De Beers Group industrial diamond group, “recorded a good first half performance in respect of both sales and profitability, with robust demand across its product ranges,” De Beers said in its earnings report. “Operating performance was impacted by, inter alia, operating challenges and a weak US dollar, but Element Six is well positioned for the remainder of the year.”

Global Diamond Demand and Prices are Up

During the past couple weeks, diamond centers throughout the world have been reporting on exports and imports of the precious commodity and in every case the results have been strikingly positive when it comes to demand and price.

India
India on Tuesday was the most recent place to report its earnings. The country’s Gem and Jewellery Export Promotion Council provided results for the 2010-11 fiscal year, saying it has had the largest increase in diamond exports in the past three years. The diamond industry is critical to India, which cuts nine out of ten diamonds produced in the world, because it accounts for 16.6 percent of its total merchandise exports.

Total rough and polished diamond exports increased 46.9 percent year-over-year to $43.14 billion, according to GJEPC.

The growth in the sector was primarily driven by polished diamonds, which registered a year-over-year increase of 54.9 percent for FY 2010-11 to $28.25 billion. Polished diamonds accounted for 65.5 percent of the total exports.

The most recent year saw the United Arab Emirates emerge as the largest exporting destination with 47 percent, followed by Hong Kong with 22 percent and the U.S. with 11 percent.

“Today the industry is looking at a staggering growth … the most we have seen in the past three years. India today is looked upon as one of the leading players in the global arena and at GJEPC; we believe that this growth path will continue in the coming year as well,” said Rajiv Jain, GJEPC chairman.

Israel
The Israel Diamond Industry recently presented its first quarter results. Net polished diamond exports for the period increased 45.7 percent in value, year-over-year, to $2.1 billion, according to data by Israel Ministry of Industry, Trade and Labor’s diamond controller Shmuel Mordechai. Net rough diamond exports rose 39.6 percent in value to $1.2 billion.

Net import of polished diamonds for the January to March-period rose 24.9 percent to $1.1 billion. Net rough diamond imports increased 48.5 percent to $1.2 billion for the period.

The United States remained Israel’s largest market with 45 percent of total exports ($694 million). Hong Kong accounted for 26 percent ($506 million), Switzerland 9 percent ($351 million), Belgium 8 percent ($190 million), China 2 percent ($63 million) and the rest of the world 10 percent.

Antwerp
The Antwerp World Diamond Centre Diamond Office, which represents the Belgian diamond industry, recently said polished diamond exports in the first quarter rose 30.1 percent in volume to 2.34 million carats, while its value jumped 30 percent to $3.43 billion.
 
In the January through March period, Belgium exported 34.1 million carats of rough diamonds, a slight decline of 2.1 percent, but in value there was a substantial increase of 29.1 percent to $3.52 billion.
 
For the same period of 2011, Belgium imported 2.43 million carats of polished diamonds, a 21.5 percent increase for the year, with a 26.2 percent rise in price to $3.20 billion.
 
The country imported 31 million carats of rough diamonds, a decrease of 2.2 percent on the year, but in financial terms there was an increase of 40.8 percent to $3.38 billion.

United Arab Emirates
The Dubai Diamond Exchange, a subsidiary of the Dubai Multi Commodities Centre Authority and a diamond trading platform, recently reported that total diamond trade volumes for 2010 reached 268.7 million carats, up 50 percent year-over-year, while the value of the precious gem doubled to $35.1 billion.

Polished diamond imports during the twelve months of 2010 rose 88 percent in volume to 90 million carats ($13.3billionn) and polished diamond exports rose 128% to 73.6 million carats ($14.6billionn). Dubai also recorded a 100 percent increase in the volume of total polished diamonds traded, reaching 163.8 million carats.

Rough diamond imports, rose by up to 13 percent during the year recording 50.4 million carats and exports by 3 percent at 54.7 million carats. However, by value, the increase was much more dramatic. The value of rough diamonds imports rose 83 percent to $3.3 billion and rough diamonds exported rose by 81 percent to $3.8 billion. Furthermore, In addition, Dubai’s rough diamond trade increased by 7 percent to 105 million carats, with the value up by 82 percent to $7.1 billion.

Dubai's top trading partners for the year were India, Belgium, Hong Kong and Switzerland, with growing trade emerging from new markets such as Angola and the Democratic Republic of Congo.


De Beers
You may have noticed that in all of these reports there’s a constant theme of dramatic increases in diamond prices, particularly for rough. Varda Shine, CEO of the Diamond Trading Company, the marketing arm of De Beers Group, says the price reflect market conditions and prices for rough will continue to rise through 2011. De Beers, which accounts for nearly 40 percent of the global diamond supply, plans to increase output by 20 percent to 38 million carats this year and raise rough diamond output further to 40 million carats, Shine said in the Business Standard newspaper in India. However, she noted that the there are no new mines ready to come on line that would help meet demand.

She told the publication that growth is and will continue to be driven by India and China. She added that the DTC expects a decline in Japan due to the March earthquake and tsunami but expects demand to increase in the U.S., which is slowly recovering from a deep recession.

De Beers 2010 Sales Up 53 Percent

De Beers Group said Friday that total diamond sales in 2010 increased 53 percent year-over-year to $5.88 billion. Sales of rough diamonds in 2010 by the Diamond Trading Company (the rough diamond distribution arm of De Beers) totaled $5.08 billion, compared with 3.23 billion in 2009.

The company’s earnings before interest, taxes, depreciation and amortization (EBITDA) grew to $1.43 billion, an increase of 118 percent over 2009.

The South African based-company said strong demand in 2010 drove a rebound in the prices of DTC rough diamonds by an average of 27 percent, to levels which are above those which during onset of the economic crisis. A considerably reduced cost base enabled De Beers to be highly cash generative with a free cash flow of $943 million, compared with $35 million in 2009.

As demand for diamonds from the industry increased, so too did De Beers production from its wholly owned and joint venture operations in Botswana, South Africa, Namibia and Canada, the carats recovered in 2010 increased 34 percent to 33 million.

“2010 was an extraordinary year that saw De Beers rapidly move from stabilization to strong recovery,” the world’s leading rough diamond company said in a statement. “The price of rough diamonds has recovered strongly as confidence returned to most parts of the diamond pipeline. Notwithstanding this, the industry is not back to pre-recessionary levels in terms of production or sales and a high degree of global uncertainty remains. While restocking picked up throughout the year, it was also clear that consumer demand rebounded, as evidenced by the extraordinary growth in China and India and the better than expected retail performance in the U.S. during the Christmas buying period.”

In Botswana, Debswana commenced the Cut-8 expansion project at Jwaneng mine. Cut-8 represents the largest ever investment in Botswana and is expected to yield 100 million carats worth approximately $15 billion over the life of the mine, which will be extended until at least 2025.

De Beers continued to expand its proprietary diamond brand, Forevermark, throughout Asia in 2010. Forevermark is now available in 348 doors globally (a 40 percent increase on the beginning of 2009), and will continue to expand in the rapidly growing Chinese market in the year ahead, the company said. Forevermark will launch in India in the first quarter of 2011 and the company said it is in an "exploratory phase" in the US, yielding positive early consumer research."

In March, De Beers concluded the refinancing of all its international and South African debt on satisfactory terms, extending the tenor of facilities to 2013. During November, the Group achieved normalized terms in respect of debt and EBITDA measurements, some two years earlier than planned.

At the end of 2010, net debt excluding shareholder loans, had fallen to $1.76 billion compared with $3.20 billion at the end of 2009.

“While the directors remain cautious about the diamond market in 2011, continued positive growth is expected, albeit at a lower rate,” the company said. “The world is not yet back to where it was prior to the onset of the economic crisis, and risks to growth remain. For the foreseeable future, continued recovery in global economic outlook and strong retail confidence are expected to underpin positive growth in consumer demand for diamond jewelry in 2011.”

The statement continued, “The U.S. market is expected to continue its recovery and the exceptional growth seen in China and India is expected to be sustained. Global economic expansion and retailer sentiment are supportive of further DTC sales growth in 2011, during which time total production for the De Beers Family of Companies is expected to reach 38 million carats, approaching full production which will, as planned, be achieved in 2012.

“In the longer term, the supply and demand dynamics of diamonds remain attractive. Diamonds are a finite resource and western consumer markets are recovering at the same time as demand growth in the emerging markets of China and India is expanding rapidly.”