De Beers will increase its production from 33.5 million carats in 2017 to 36 million, supported by gains made at its Gahcho Kue mine in Canada. While there is currently not a huge demand for diamond jewelry, this surge in production is a sign that the industry is headed in a positive direction.
CEO Bruce Cleaver noted, “[g]lobal production is peaking, and will remain at these levels without a significant increase for some time,” adding, “[o]utput will then slide to 32 million carats in 2019 and 2020.”
While global economic conditions support consumer demand, De Beers stated that the decrease in production will be due to next year’s switch from surface mining to digging underground shafts at its Venetia mine in South Africa.
Prior to the production announcement, De Beers maintained a positive outlook for 2018 off the back of stronger consumer demand for diamond jewelry in US and China in 2017.
Demand has picked up for certain polished categories that once struggled, including VVS-clarity stones. The company’s retail unit, De Beers Diamond Jewellers, also saw a strong December sales period.
But after the news, some analysts warned that the market might not be able to handle a large increase in diamond supply.
“There could be the early signs of a market turnaround, but this hardly warrants production increases from the majors,” said Ben Davis, an analyst at Liberum Capital Markets in London.
He also warned that, “[p]roduction discipline has only just started to work and midstream need more margin expansion to be anywhere close to a healthy sustainable market.”
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.