Tough market forces ODC 2015 sales down by 45%
Mbongeni Mguni | Friday January 15, 2016 14:19
Established as part of the 2011 renewal of a sales agreement between De Beers and government, Okavango in 2015 was entitled to purchase 14 percent of Debswana’s production and independently auction it. Contractually, the figure rises to 15 percent this year.
Yesterday, Okavango managing director, Toby Frears said the number of carats sold by the company had dropped in 2015 to 1.6 million from about 3.3 million in 2014.
“In 2015, we offered our customers reduced volumes on account of the very challenging market conditions in the mid-stream,” he said, in a written response.
Frears remarks echo those of other rough diamond players who spoke of ‘indigestion’ in the diamond pipeline as the cause for weak sales in 2015. Last November, then De Beers chief financial officer, Gareth Mostyn told BusinessWeek that the indigestion was caused by a pooling of rough diamonds within the cutting and polishing firms, who suffered from weak polished prices.
The firms’ troubles were worsened by challenges in securing credit lines, eroding their ability to participate in both De Beers and Okavango auctions. De Beers responded to the challenges by cutting production across its operations and investing a record US$100 million in a festive season marketing campaign in the US, China and India.
“We do feel that the indigestion in the pipeline from high inventories will normalise, helping rough diamonds to recover, but stimulating demand through our marketing is critical,” Mostyn said. In December, Debswana cut its 2016 production target from 21 million carats to 20 million, citing the continuing challenges in the market. The diamond giant also suspended production at Damtshaa Mine and redeployed 250 workers to avoid job losses.
Government has also pledged to help out struggling cutting and polishing firms by addressing challenges such as productivity and issuing a waiver for the payment of the training levy.