Industry Analysis

De Beers Optimistic as Sales Revive; Luxury Houses Remain Cautious

A scattering of rough diamonds
De Beers and Alrosa sold more than $1 billion (£800 million) into the rough market in January, the largest monthly quantity in three years. These rough diamonds – from Brauna, Nordestina City, Brazil – have a total weight of 62.78 carats. Courtesy Aftergut N. & Zonen. Photo by Robert Weldon/GIA

De Beers issued a dose of optimism recently, holding its largest cycle (sight) in more than two years. Additionally, luxury sales have begun to rise again, albeit hesitantly, after a negative year.

The company’s January cycle totalled about $720 million (£580 million) and the 20-23 Feb cycle is expected to be of a similar size.

De Beers CEO Bruce Cleaver said demand for rough diamonds remained “healthy”, adding that the company would exercise caution if necessary, especially at the lower end of the market where Indian manufacturers are still trying to adjust to the demonetisation of 500 and 1000 rupee notes (worth $7.50/£6 and $15/£12 respectively) which has hit some of the smaller firms that deal mainly in cash.

While rough demand remains firm, stocks of polished diamonds have been increasing as sales have not kept pace with production of new goods. This is creating concern that the trade may encounter difficulties in the second half of the year.

Alrosa, which mines and markets the majority of Russia’s diamond production, sold $358.2 million (£288.1 million) in rough diamonds at its January sale. The company expressed caution, especially for melee goods that have been affected by India’s demonetisation.

The large luxury houses – including LVMH, which owns the majority of shares in De Beers’ retail operations, Italian jewellery brand Bulgari and Fred Joallier − posted a 5% worldwide sales increase for the year, with an especially strong final quarter.

LVMH chairman Bernard Arnault warned against “irrational exuberance” as the company’s stock climbed about 10% in the final quarter, saying potential trade and currency wars and continued difficulties in Europe − coupled with the fact that the world is coming to the end of a 10-year growth cycle − could bring “difficult trading conditions” during the second half of the year. LVMH noted it would mount a strong marketing push to counteract this challenging economic and geopolitical environment in 2017.

Richemont, which owns Cartier and Van Cleef & Arpels, had an 8% sales increase in its jewellery division during the first fiscal quarter of 2017, after a 13% decline for the fiscal year 2016 that ended on 30 Sept. While improved business in the Chinese mainland was one factor for the increase, strong demand from wealthy U.S. consumers also accounted for a significant portion of the increase. 

Russell Shor is senior industry analyst at GIA in Carlsbad.