Market headwinds drag ODC sales down 35%

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CAPE TOWN: Okavango Diamond Company (ODC) value of sales fell by 35 percent in the first nine months of the year compared to the same period in 2014 as global market headwinds impacted demand for rough diamonds.

In the period January to September, ODC  sold 1.64 million carats of rough valued at $303 million. 

According to ODC deputy managing director, Marcus ter Haar this represented a 35 percent drop in the value of rough stones sold in the same period last year, which stood at $463 million.

In carat volumes, ODC sales in the period dropped by 40 percent from last year’s 2.7 million carats.

“As a result of very challenging market conditions since the fourth quarter of last year, our sales are significantly down on the corresponding period in 2014,” said Ter Haar.

In terms of prices, Ter Haar said there has been a small reduction in the average price per carat achieved at their sales compared to the same period last year as a result of both market fluctuations and changes in the diamond selling assortment. State-owned ODC, which has held eight tenders in 2015, is expected to sell 14 percent of the production of Debswana, a joint venture between Botswana government and Anglo American’s diamond unit, De Beers.

ODC was established in 2013 to market a portion of Debswana’s rough diamond production as Botswana seeks to develop its own price book through an independent window outside of De Beers’ channels.

As per a 2011 agreement with De Beers, ODC’s supply of the diamonds from Debswana increases by one percent annually, until it reaches 15 percent by 2016.

Debswana produced 24.3 million carats from its four mines in 2014, but has been forced by sluggish market conditions to trim its 2015 production target from 23 million carats to 20 million.

The prevailing headwinds in the diamond market have since pushed finance ministry officials to cut the 2015 economic growth target by half while an envisaged P3 billion fall in custom revenues is seen pulling the 2015-2016 budget into a deficit.

According to the 2016-2017 Budget Strategy Paper (BSP) released in August, the economy is seen growing by 2.6 percent while the budget balance is now forecast to post a deficit of P4.03 billion or 2.6 percent of the GDP.  In February, finance minister Kenneth Matambo announced a growth target of 4.9 percent for 2015, while the budget was seen posting a surplus of P1.23 billion or 0.8 percent of the GDP.

As a result of the downturn, Ter Haar says ODC, which was scheduled to hold 10 auctions this year has cancelled its November sale .

“We have maintained sales throughout the year according to our sales schedule, albeit at reduced volumes in response to market conditions. This said, we elected to offer only +10 carats ranges at our October sale and we have taken the decision not to hold a sale in November, which was scheduled to take place prior to the Diwali holiday,” said Ter Haar. ODC will  hold the last  sale of the year  in December. 

The cancellation of the November auction comes at a time when De Beers also allowed its contracted buyers to defer up to 100 percent of their allocations at the November sight as diamond cutters and polishers remain under pressure from weak market conditions. 

De Beers rough sales are down about 38 percent year-on-year so far in 2015, according to Rapaport estimates.

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