De Beers deals with own Brexit
• Indian buyers to get leeway after project to demonetise economy hits the diamond business
De Beers is dealing with a shock equivalent to Brexit and Donald Trump’s election after the surprise demonetisation programme in India that has compelled the rough diamond giant to offer its Indian buyers continued flexibility in their purchases this year.
De Beers is dealing with its equivalent shock of Brexit and Donald Trump’s election after the surprise demonetisation programme in India that has compelled the rough diamond giant to offer its Indian buyers continued flexibility in their purchases for the year ahead.
Prime Minister Narendra Modi sent shockwaves through the Indian economy in November by recalling the 500 and 1,000 rupee notes, to be replaced with newly printed 500 and 2,000 rupee notes. The effect on the economy is being felt by De Beers, the largest producer and seller of rough diamonds by value.
De Beers CEO Bruce Cleaver said in Gaborone at the start of the first of 10 rough diamond sales for 2017 that after a year of unpredicted surprises, “the most serious of the surprises for many of us in this room, Prime Minister Modi’s demonetisation programme in India falls squarely in this category”.
“Demonetisation is likely to have an impact on several of our businesses, so we need to respond with care and in the right way.”
De Beers has extended its flexibility in the selling of diamond parcels to its clients exposed to the Indian market, which generally cuts smaller, lower-value diamonds and is the world’s largest cutting and polishing industry.
Out of 80 clients, about 30 are exposed to India.
De Beers normally gives its handpicked clients extremely limited flexibility in not buying a parcel of diamonds at one of 10 sales events. It is cognisant of the difficult and unsettled economic situation in India and has provided additional flexibility.
The demonetisation programme “has much more direct relevance to the diamond sector and it’s likely that we will continue to experience the impact in the Indian industry in the coming months, even if the programme yields a positive outcome in the long run”, he said.
“As industry leaders, it will require us all to act prudently and take a calm and responsible approach so that we do not sacrifice long-term benefit at the altar of short-termism,” he said.
A Reuters poll showed that the fall in India’s economic growth to below a forecast 6.5% in the last quarter of 2016 after six consecutive quarters of more than 7% growth would reverse. The economy should grow 6.9% in the first quarter.
In 2016, De Beers sold $5.583bn worth of rough diamonds based on the 10 sets of figures it released. This was ahead of a JP Morgan Cazenove forecast of $5.3bn.
De Beers reported revenue of $4.67bn in 2015, down from $7bn the year before.
The final sale and auction in December realised the lowest price for the year, reaching a provisional $418m because of events in India and the seasonal slowdown in rough diamond purchases as the industry focused on retail sales of diamond jewellery, particularly in the US.
“While the trade in lowervalue rough diamonds is experiencing a slowdown as a result of the demonetisation programme in India, demand across the rest of the product mix continued to be healthy and overall sales remained in line with seasonal expectations,” Cleaver said in December.
Looking ahead for 2017, Cleaver identified synthetic diamonds and efforts by the natural diamond industry to protect itself, the financing of the cutting and polishing industry after a very difficult 2015 and making diamonds competitive in the battle for access to the consumers’ wallet in the face of a wide range of luxury goods.
IT’S LIKELY THAT WE WILL CONTINUE TO EXPERIENCE THE IMPACT IN THE INDIAN INDUSTRY IN THE COMING MONTHS
AS INDUSTRY LEADERS, IT WILL REQUIRE US ALL TO ACT PRUDENTLY AND TAKE A RESPONSIBLE APPROACH