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Diamond industry in healthier position going into 2020

03 february 2020

david_johnson_xx.pngThe diamond industry is in a healthier position going into 2020 due to actions taken last year, according to De Beers.

Group spokesperson David Johnson told Rough & Polished’s Mathew Nyaungwa that the actions taken included reducing rough diamond production in response to the lower demand, adjusting rough diamond prices, offering their customers increased flexibility to defer their rough diamond purchases and selling smaller Sights.

He said poor sales in the final two weeks leading up to Christmas in 2018 (due largely to US stock market volatility and US-China trade tensions) meant retailers had lower appetite to restock at the start of 2019.

This, said Johnson, led to the midstream being oversupplied with inventory and rough diamond demand subsequently reduced significantly.

Below are excerpts from the interview.

What is your projection of the state of the diamond industry this year?

While it’s too early in the year to provide firm predictions, midstream trading conditions have started to improve following the challenges last year. Global consumer demand for diamond jewellery remains largely stable, despite broader challenges in some markets, and continues to perform relatively well in the key US market.

While macroeconomic conditions including US-China trade tensions and protests in Hong Kong will need to be monitored, the industry, on the whole, is in a healthier position going into 2020 as a result of the actions taken last year, which should see a return to a more stable environment.

What were the major factors that impacted your business and the industry at large in 2019?

Poor sales in the final two weeks leading up to Christmas in 2018 (due largely to US stock market volatility and US-China trade tensions) meant retailers had lower appetite to restock at the start of 2019. This led to the midstream being oversupplied with inventory and rough diamond demand subsequently reduced significantly.

These challenges were exacerbated by liquidity tightness in the midstream, as well as downstream impacts including the evolution to a greater share of online sales (which require less inventory), some brick and mortar retail outlets closing (and liquidating inventory) and more retailers seeking to undertake memo business.

What measures are you taking to ‘inoculate’ your group from the challenges that you faced last year?

We took a number of actions during the course of last year, which have already helped deliver an improvement in trading conditions. These actions included reducing rough diamond production in response to the lower demand, adjusting rough diamond prices, offering our customers increased flexibility to defer their rough diamond purchases and selling smaller Sights. We also increased marketing expenditure to the highest level in a decade to further drive consumer demand for diamond jewellery in the 2019 sales season.

We will continue to evolve our business over the medium and longer term to support improved profitability through a range of measures, such as technology innovation and enhanced data-driven decision-making (aided by initiatives such as the Tracr platform), looking at how to best maximise the value of our downstream operations with our brands, and developing and refining our rough diamond distribution approach.

What is your projected output this year?

Our rough diamond production forecast for 2020 is 32 to 34 million carats, subject to trading conditions.

What is your comment on recent media reports that you are planning to reduce the number of sightholders at the end of the current term?

We will be communicating directly with customers in the coming months about the new Sightholder contract period, which will focus on maximising the considerable opportunities ahead in the diamond sector.

When are you expected to conclude your negotiations for a new sales and marketing deal with Botswana?

The current Sales Agreement runs to the end of 2020 and we are in the process of discussions with the Government of the Republic of Botswana about renewal.

Your GemFair programme currently has 94 participating sites, in Sierra Leone. When will you go beyond the West African country?

Our focus is on continuing the pilot in Sierra Leone and there are no current plans to expand the programme further.

How many carats of diamonds have you acquired from the ASM sector since GemFair was launched in April 2018?

GemFair continues to progress with its pilot programme and has not published data on the volume of diamonds purchased to date.

Are your consumers confident of the diamonds coming from the ASM sector given ethical concerns raised by some?

GemFair will give consumers much greater levels of assurance regarding the sourcing of ASM diamonds, as it addresses challenges relating to worker standards, environmental impact and the value received by those participating in the sector.

All mine sites participating in the programme must align with GemFair’s minimum ethical and operating guidelines, while working towards continual improvement under the guidance and monitoring of GemFair’s local team.

GemFair uses a bespoke digital solution in the form of both hardware (a diamond ‘toolkit’) and software (a dedicated app) that ensures all rough diamonds purchased by GemFair are traced directly from the point of discovery at the mine site, providing assurance that they are ethically-sourced.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough & Polished