Softer rough diamond demand resulted in a difficult H1 2015 for De Beers, with underlying EBIT decreasing by 25% to $576 million (£371m).
In the six months ended June 30 2015, weaker revenue from rough diamonds was slightly offset by lower operating costs and favourable exchange rates.
Total sales decreased by 21% to $3 billion (£1.93bn) (H1 2014: $3.8 billion), with rough diamond sales decreasing by 21% to $2.7 billion (£1.739bn). Lower rough diamond revenue reflected a 27% reduction in consolidated sales volumes to 13.3 million carats (H1 2014: 18.1 million carats).
Average realised diamond prices increased by 7% to $206/carat (£132) (H1 2014: $192/carat) owing to the sale of a stronger product mix, despite a 4% lower average rough price index for the period.
In response to prevailing market conditions, De Beers has utilised operational flexibility at some mines to make marginal adjustments to production plans. Production costs and overheads are being tightly managed in order to minimise the profit impact of the lower sales.
Consumer demand for diamond jewellery (measured in US dollar terms) slowed towards the end of 2014 and into the first half of 2015, driven by slower global economic growth, a weaker than expected Q1 in the US (weather related) and dollar strength.
Diamond jewellery retailers experienced lower than expected sales growth over this period, which led to polished stock build-up and, accordingly, weaker polished diamond purchases from the midstream and a decline in polished prices.
Rough diamond demand in the second half of the year will be dependent upon the level of retailer restocking that takes place in preparation for the main jewellery selling season in the fourth quarter.
Global demand for diamond jewellery (in US dollar terms) is predicted to be stable in 2015. Downside risks remain, especially related to diamond jewellery demand growth in China, as the country grapples with slower economic growth and asset price challenges.
De Beers’ production guidance for 2015 has been revised to 29 to 31 million carats subject to trading conditions.