April Market Report
I took a bit of an extended hiatus after Passover, traveling and what not. And what an inopportune time to switch off the diamond industry news. Call it murphy’s law, or perhaps karma, but suddenly things are getting rather interesting out there.
The debate around Russian sanctions took somewhat of a back seat in April after initial delays were reported in Antwerp and Ari Epstein stepped down as CEO of the Antwerp World Diamond Centre (AWDC). The trade seems now to be focused on understanding what will be required for the September 1 deadline and some behind-the-scenes lobbying to make the proposed traceability system more industry friendly.
It was De Beers that dominated the headlines during the month, with a slew of stories related to the company.
Among those, the decision to relocate its auction business from Singapore to Gaborone sparked sparked one burning question: why was it in Singapore in the first place? One assumes the latest move was part of the recent marketing agreement between De Beers and the Botswana government (has that deal been officially concluded yet?). Whether that is the case or if the auctions were moved on De Beers's own volition, it makes sense given all other De Beers rough sales take place in Botswana.
However, the biggest story of the month was BHP Billiton’s bid to buyout Anglo American, the 85% owner of De Beers. The offer, which Anglo rejected, fueled speculation about the future of De Beers, and raised questions about the company’s prospects for growth and the state of the diamond market in general.
There has been an eerie feeling that something might be brewing at De Beers for some time, particularly after its weak 2023 results prompted Anglo to write down the book value of the diamond unit by $1.56 billion.
Anglo’s first-quarter production report did little to restore confidence as De Beers reduced its production plan for this year to between 26 million and 29 million carats, from 29 million to 32 million previously forecast. That, after rough sales fell 17% to $1.25 billion in the first three sales cycles of the year, continuing the downtrend evident in 2023.
De Beers accumulated inventory during the first quarter, having sold 4.87 million carats and recovered 6.86 million carats. Production exceeded sales by 4.5 million carats in 2023.
The results, and the reaction by Anglo, give some insight into the true state of the diamond market.
The last four years have been anomalies of diamond and jewelry demand. Covid saw an unprecedented shutdown, 2021 and 2022 brought a fantastic rebound, and 2023 another decline.
Based on De Beers data and in-house estimates for 2023.
Taken all together, the average over the 2020 to 2023 period evened out to just above 2019 levels.
Based on De Beers data and in-house calculations for the average of 2020-2023.
Given that 2024 is arguably the first “back to normal” year, can we expect that average to be the true level of demand? Or has overall demand for diamonds declined to 2023 levels? Perhaps it will show growth year on year, but remain below the 2019 benchmark.
So far, the uncertainty at retail continues. LVMH watch and jewelry sales declined 5% in the first quarter, gem-set jewelry sales are down in China, and spending on jewelry was expected to edge down over Mother’s Day.
That doesn’t bode very well for the valuation of De Beers in a potential takeover deal. Anglo would want a strong and confident diamond and jewelry market to shore up the De Beers price if it does decide to sell. Then again, it might want to hold onto the company if the market does rebound to that extent.
It is all a matter of speculation for now, but it serves as a reminder how much De Beers depends on diamond market conditions. The story has died down in recent weeks. But it’s unlikely to go away completely. As long as De Beers and the diamond industry struggles with prevailing weak demand, the speculation will continue well beyond the April newsflash.
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