Oversupply in the small diamond segment and an overall drop in global rough diamond prices have likely weighed heavily on the producer.
International diamond major De Beers has reported a 32.87 percent decrease in its Cycle 5 rough diamond sales compared to the same period last year.
The company’s rough diamond sales totaled US$581 million during the fifth cycle of 2018 and only US$390 million for this year’s fifth cycle, which concluded on Monday (June 24).
Oversupply in the small diamond segment and an overall drop in global rough diamond prices have likely weighed heavily on the multinational diamond producer.
“While overall retail sentiment for diamond jewellery in the US remains solid, a more challenging environment in China and higher than normal polished diamond inventories in the midstream resulted in a cautious approach from rough diamond buyers during the fifth cycle of 2019,” Bruce Cleaver, CEO of De Beers Group, said in the cycle report.
Despite the major year-over-year drop, the cycle-to-cycle decline was less significant. In Cycle 4 of 2019, De Beers sold US$416 million in rough stones, about 6 percent more than Cycle 5’s results.
At the Northern Miner Diamond Symposium held in Toronto earlier this month, diamond analyst and consultant Paul Zimnisky spoke about some of the complexity and opaqueness in the diamond market.
“When we look at diamond price, it’s a nuanced commodity. The medium and large diamonds are actually up in the last few years, but smaller categories are down 30 percent, so there has been a sharp decline in the small category,” he told attendees.
Zimnisky attributes the supply glut to excess production from several new mines that came online in 2017. While small stones make up approximately 50 percent of the diamond sector, the value of the diminutive diamonds only makes up 20 percent of global production value.
The analyst noted that innovation has allowed more small diamonds that may have gone unnoticed before to be recovered. Most notable is advanced X-ray transmission (XRT) diamond recovery technology, which is currently being used by Lucara Diamond (TSX:LUC,OTC Pink:LUCRF).
“One thing that no one really talks about is the technological advancements in the recovery. It has really increased the efficiency, and it’s also recovered a lot of smaller diamonds,” he said. “I think that’s part of the reason why the small categories are oversupplied.”
According to the Zimnisky Global Rough Diamond Price Index, the value of roughs has slipped from the July 2018 price of US$159.70 to the current price of US$147.05, which is only a dollar higher than the 52 week low of US$146.17.
Diamond demand is expected to grow by 3.6 percent throughout 2019, a 2.1 percent decline from last year’s growth pace.
Geopolitical uncertainty from the UK to the US is also weighing on consumer sentiment, partially due to diamond demand being correlated to the global GDP growth.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.