Anglo American Plc, a prominent mining company, has recently indicated that it might have to write down its diamond unit, De Beers, due to the negative impact of the diamond sector. The industry endured a substantial decrease in prices last year, and although there is hope for a recovery, it is expected to be a slow and gradual process. As a result, Anglo American is currently reassessing the value of De Beers, which reported losses in the latter half of 2023.
In the second half of last year, the diamond sector faced immense challenges as the two largest diamond miners, De Beers and Alrosa PJSC, significantly reduced supplies in an effort to counter the downward spiral of prices. While these actions did contribute to an improvement in the market to some extent, the level of demand from trade buyers remains uncertain.
The diamond industry has experienced a tumultuous journey since the onset of the COVID-19 pandemic. Initially, it witnessed a surge in demand, with consumers confined to their homes resorting to luxury purchases such as diamond jewelry. However, with the reopening of economies, this demand quickly dwindled, leaving many in the industry with excess stock purchased at inflated prices.
The situation further deteriorated as the crucial US market grappled with rising inflation, leading to a decline in consumer confidence. Furthermore, the growth of China, a key market for diamonds, was hindered by a property crisis, dampening consumer sentiment even more. Adding to these challenges, the industry faced heightened competition from lab-grown diamonds.
Al Cook, the CEO of De Beers, expressed his optimism for a market recovery in the upcoming year, albeit a gradual one. In 2012, Anglo American acquired a 40% stake in De Beers from the Oppenheimer family for $5.1 billion, increasing its ownership to 85%. The remaining stake is held by Botswana.
Overall, the diamond industry has encountered significant obstacles due to the slump in prices and the volatility caused by the pandemic and other economic factors. Anglo American’s careful evaluation of its investment in De Beers highlights the uncertainties and risks prevailing in the diamond sector.