ODC sales drop 60% as diamond downturn deepens
Mbongeni Mguni | Monday October 2, 2023 06:00
The figures come as India – which cuts and polishes at least 80% of the world’s rough diamonds – announced on Wednesday that it is banning imports of the stones for two months in order to “better manage the balance between supply and demand”.
This week’s revelations add onto an increasingly bleak picture for rough diamonds this year, where sales, prices and revenues are sharply down, in certain cases by double-digit percentages. The crisis has largely been caused by high inventory levels of polished diamonds in the midstream, that section of the diamond pipeline occupied by cutters and polishers, who buy from mines and sell to jewellers.
Last year’s extraordinary post-COVID rebound for diamonds increased supply into the midstream, which this year has met global economic uncertainties, a softer-than-expected performance from China, the industry’s reputational knock from the continued flow of sanctioned Russian diamonds into the market as well as stiffer competition from synthetics, resulting in the midstream glut.
Figures shared with BusinessWeek show that between January and June 30, ODC sold about 2.58 million carats, generating revenues of $417.39 million, compared to 2.77 million carats and revenues of $664.6 million over the same period last year.
The ODC has an allocation to purchase 25% of Debswana’s annual production, a figure that averages six million carats a year. That amount is due to increase to 30% soon, as the recently sealed deal between government and De Beers kicks in.
“There’s just too much inventory in various parts of the value chain and it will take a lot of patience before we see that go away,” ODC managing director, Mmetla Masire told a briefing on Monday. “There’s also a gap between rough and polished prices which means we are expecting people to buy rough at higher prices that they sell their polished. “We have to get those lines closer to each other.”
The gap between rough and polished prices is one of the main reasons India on Tuesday imposed a two-month ban on imports of rough diamonds. In a statement released Mumbai-based Gem & Jewellery Export Promotion Council, which represents 7,500 firms, said diamond mining companies were pumping out stones, “irrespective of the state of demand in the midstream”.
“They rely on the midstream to gauge the demand for rough diamonds and are happy to respond with corresponding levels of supply. “This puts the onus on the midstream to transmit real levels of demand by translating our need for supply of rough diamonds to all mining companies,” the council said.
India’s diamond-cutting and polishing firms exported $9 billion worth of stones in the first half of this year, compared to $12 billion over the corresponding period last year, indicating stockpiling, lower imports from producers and lower prices.
Indian firms form the majority of the ODC’s 600 or so registered clients who participate in the company’s ten spot auctions each year. The ODC MD told BusinessWeek that already this year, the company had recorded auctions where zero or negative returns were made.
The ODC’s particular challenge in a weak market is that it is required to take up its Debswana allocation and within a short space of time, make a decision on offering the stones at auction, in the process risking a return or a loss. Even when the ODC holds onto stones it has purchased from Debswana, the prices available via the spot auctions may fall even further, eating into the company’s cash flow.
“The current market outlook is not very good and we expect that well into next year, we are going to see the same in the market,” Masire said. “The market is in free fall and what we are hoping to see soon is a bottoming out so that we can have the reference point and start working on getting out from the bottom. “We still have too many diamonds in the supply chain and the record sales that we had before, were a double-edged sword. “The lab-grown diamonds have also made some in-roads in certain places of the market and we expect this will take about one or two years before their prices are too low for them to sustain their operations.”