Cautious optimism as diamond market strengthens

| Monday June 7, 2010 00:00

The economic fallout that followed the near collapse of the global financial system in the fourth quarter of 2008 shaped the company externally and internally by the proactive measures it took across the group to ensure that it adapted to changing circumstances. De Beers chairperson Nicky Oppenheimer comments in the report that total sales in 2009 of $3,84-billion were well below the 2008 figures of $6,89-billion. Likewise, earnings before interest, tax, depreciation and amortisation of $654-million were well below the 2008 figure of $1,22-billion. 'Such a dramatic drop in revenues would, in any other year, be a cause for alarm. In 2009, however, it serves as a testament to the adaptability of our business, the resilience of our partnerships and the resourcefulness and diligence of our employees at a time of great insecurity,' he says.

Diamond producers were particularly hard-hit by the economic crisis. The sudden drop in consumer demand in the fourth quarter of 2008, in established markets, fed back into an already highly leveraged cutting and polishing pipeline, burdened by significant inventories and a drying up of liquidity.

This, in turn, induced a rapid drop in demand for rough diamonds towards the end of 2008, which continued throughout the first quarter of 2009. To reduce De Beers' overall operating costs, a number of its business units restructured some of its core functions. The process resulted in an overall reduction of its workforce by 23% at the end of 2009.

In its yearly report, the company says that it is encouraged by initial stronger levels of demand in 2010 than were witnessed in the corresponding period in 2009. History has shown that demand generally rebounds strongly in post-recessionary periods as manufacturers and retailers rebuild their inventories. The company remains cautious, however, as global consumer demand for luxury goods has not yet fully recovered to pre-crisis levels.

Meanwhile, the company reports that China and India have become the two priority growth markets for diamonds.They are expected to collectively account for one-third of global demand by 2015. De Beers launched the Forevermark programme, a proprietary diamond brand, in both the Chinese and Indian markets to support its preferred bulk purchasers in driving consumer demand for diamonds.

In the US, the world's largest diamond consumer market, consumers were particularly hard-hit by the economic downturn. De Beers reported that its Everlon marketing initiative was well received and pointed to trends that indicated that the economic downturn had bottomed out, with growth over the Christmas season providing encouragement for the world's largest diamond consumer market.

At the end of 2009, Botswana diamond producer Debswana announced a major expansion project at the company's flagship mine, Jwaneng. (Miningweekly)