The world’s largest diamond producer, De Beers, has reported a 99-percent drop in net profits for the first half of 2009 to just $3 million after demand for luxury goods was hard hit by the global recession.
The diamond giant, which has a 50/50 partnership with Government in Debswana, made $316 million in the same period a year ago before the economic downturn deterred even the wealthy from splashing out on non-essentials.
De Beers blamed an “extraordinarily difficult” trading environment for the slump in profitability. Sales of rough diamonds by DTC (including joint ventures like DTC Botswana) were down by 57 percent to $1.4 billion with production slashed by 73 percent to 6.6million carats.
“The industry has been severely impacted by the global economic environment being the most difficult in decades,” said the company, which temporarily halted production at its Botswana mines until last April and has cut its global workforce by 23 percent.
De Beers posted a second quarter profit of $189 million on sales of $1.3 billion after a first quarter loss of $186 million on sales of just $400 million.
The giant diamond miner, which generally reports only year-end and half-year results, said it was presenting the quarterly sales and earnings to show how its performance has improved.
The poor figures add to growing evidence that the luxury goods sector has been hard hit by the global financial crisis that tightened its noose on developed economies in the second half of last year.
Earlier this year, De Beers temporarily ceased production at many of its mines, resulting in a 73-percent drop in first half output. It anticipates that output this year will be half of last year’s 48.1 million carats.
But the company struck a somewhat optimistic note on outlook, saying “industry sentiment improved significantly” in the second quarter of this year with the price of rough diamonds beginning to rise again. While diamond demand is still subdued in the US, there is stronger interest in emerging markets such as China and India.
“The price of rough diamonds has begun to trend upwards,” it said. “These translate into improving sales trends for the DTC.”
De Beers pointed out that no major new diamond deposits have been discovered in over a decade, suggesting that demand will increasingly outpace supply.
“Looking to the medium term, diamonds have historically performed well in periods following recessions, with significant price growth seen in almost every recovery period dating back to before the 1970s,” the company said.
But it also admitted that few of the jobs it has eliminated in the downturn will be recreated even if the market rises again.
De Beers produces and markets 40 percent of the world’s rough diamonds by value, extracting them from 14 mines in Botswana, South Africa, Namibia and Canada.
It sells the diamonds to 78 sightholders, which are primarily diamond-cutting and polishing companies.
In Botswana, there are 16 sightholders who get their supply from DTC Botswana. Recently, the sightholders have suffered from a pullback in lending by banks and a sharp downturn in demand.
Despite the recent plunge in its sale of rough stones, De Beers estimates retail sales of diamond jewellery globally are down just 5 percent to 10 percent overall.
Posted: 2009-07-28 06:56:05