Page 110 - RusRPTSept20

Polished diamond prices finally rebounded in July, which, coupled with bright spots in the US downstream market in May-July, suggested that July saw slight improvements overall in global diamond market fundamentals. Supply of roughs is to remain muted in coming months, which we believe reflects the fragile nature of early recovery, with COVID-19 risk for short-term demand still in place, in our view.
Miners’ output declines in 2Q20, but inventories rise still. Global diamond production was down as much as 33% y/y in 2Q20, as De Beers and Alrosa made the majority of the cut. As the diamond market was effectively paralysed during COVID-19 lockdowns from March, we estimate global rough diamond sales were down 66% y/y, with sales by De Beers and Alrosa falling close to zero. As miners increased their inventories by a record 11.1mnct in 2Q20, their inventory reached all-time high of 76.1mnct.
Downside to production in 2020 remains. Assuming major miners follow their guidance, we reiterate our forecast for a 20% y/y decline in production and a 30% y/y decline in sales volume in 2020F. However, we note downside risks both to De Beers and Alrosa’s production guidance of 25-27mnct and 28- 31mnct, respectively, if rough diamond demand is weak in 4Q20.
Major miners keep rough diamond index little changed YTD. Summarising 1H20 rough diamond price performance, Alrosa and De Beers have cut their indices 3 and 1% YTD. However, this might not be representative, given effectively zero volumes were sold in 2Q20 (only high-quality stones, which boosted average realised prices). This remains stronger than the cut by some minor players (more than a 20% cut by Petra and an almost 40% by Angola).
Alrosa plans to gradually ramp-up sales from August. While De Beers has not reported any sales since early March due to the 100% deferral allowed to sightholders, Alrosa’s sales were again minimal in June, at $25mn. Moreover, the company maintained a 100% deferral option for July sales (we expect them to be negligible as well). However, for August onwards, Alrosa plans to increased minimum purchase under long-term contracts to 50% of the plan, which might result some m/m rebound in August sales. However, we believe
110 RUSSIA Country Report September 2020 www.intellinews.com