LONDON — Soft demand for rough diamonds dented profits at diamond miners De Beers in the first six months to June 30, with earnings before interest and taxes falling 25 percent to $576 million. Total sales were down 21 percent to $3.02 billion, with rough diamond sales decreasing by 21 percent to $2.7 billion.
The second half could also prove a challenge, according to De Beers’ parent Anglo-American.
The company said Friday in its half-year update that “risks to the business remain, especially in relation to diamond jewelry demand growth in China, as the country grapples with slower economic growth and asset price challenges.”
It said rough diamond demand in the next six months will be dependent on the level of retailer restocking that takes place in preparation for the main jewelry selling season in the pre-Christmas fourth quarter. Global demand for diamond jewelry, Anglo added, is forecast to be stable in 2015.
Given the challenges seen in the first half of 2015, “rough diamond demand is likely to remain constrained for the year as a whole.”
Anglo added that “the continued strength of the U.S. dollar, coupled with lower consumer diamond demand growth in China, is likely to lead to stable global diamond jewelry demand for the full year.”
It added, however, that in the mid- to long-term, the prospects for the industry remain “positive as the rise in the world’s middle class is expected to underpin stronger growth in demand for diamonds, outstripping growth in production.”
In its first-half report, Anglo-American said consumer demand for diamond jewelry slowed toward the end of 2014 and into the first half of 2015, driven by more sluggish global economic growth, a weaker than expected first quarter in the U.S., which was weather related, and dollar strength.
It said diamond jewelry retailers experienced lower than expected sales growth in the six months, which led to polished stock build-up, weaker polished diamond purchases and a decline in prices.
Anglo said that due to “prevailing market conditions,” De Beers has used operational flexibility at some mines to make marginal adjustments to production plans. Production costs and overheads are also being tightly managed in order to minimize the profit impact of the lower sales.
Forevermark, De Beers’ collection of branded diamonds that it markets to jewelers, continues to expand. The number of retail outlets where the brand is present rose by 13 percent over the last 12 months, and it is now available in more than 1,600 stores in 35 markets. Inscription and grading volumes have also increased as Forevermark broadened penetration into its key growth markets of China and India.
In March, Forevermark opened a new inscription and grading facility in Surat, India, which has the potential to process up to $500 million worth of diamonds annually, the company said.
De Beers Diamond Jewelers, the joint venture with LVMH Moët Hennessy Louis Vuitton, maintains its portfolio focus on “fast-growing markets,” with 36 stores, of which 13 are franchises, in 12 key consumer markets around the world, Anglo said.