Our focus in 2009 has been on running a sustainable business, at a lower level of sales, by taking bold action to ensure our operations and activities continue to reflect and respond to the needs of our clients. To do this we focused on three key areas – lowering production levels in line with client demand, cost savings and operating efficiencies, and stimulation of consumer demand.
In line with others in the luxury sector, the diamond industry was severely impacted in 2009 by the global recession. The impact of high stock levels throughout the diamond pipeline, constricted liquidity in the cutting centres, and lower consumer demand led to lower demand for rough diamonds from DTC Sightholders. The industry was affected most acutely in the first quarter and, as the year progressed, sentiment improved which allowed the DTC to increase its prices and sales volumes throughout the second half of the year.
At the retail level, the 2009 holiday period took place amidst continued economic weakness, with American consumers continuing to spend less than previous years. The luxury goods and high-end jewellery sector appeared to perform slightly above expectations, outperforming other categories. In the emerging markets of India and China, demand for diamond jewellery remained positive in the face of a weaker economic climate.
In 2009, and in response to the global recession, De Beers focused on three key areas to ensure we continue to run a sustainable business – lowering production levels in line with client demand, cost savings and operating efficiencies, and stimulation of consumer demand.
Producing diamonds in line with client demand
Driving cost reduction and operating efficiencies
Maximising demand for diamonds
At the end of 2009, Debswana announced a major expansion project at Jwaneng, the world’s flagship diamond mine in Botswana. This project, also known as Cut-8, will ensure profitable and continuous production at Jwaneng until at least 2025. Debswana will invest $500 million in capital expenditure, while the estimated project investment is likely to total $3 billion over the next 15 years. At its peak, the project will create more than 1,000 jobs and will create access to a further 95 million carats, which could be worth in excess of $15 billion over the life of the mine.
De Beers will continue to take a cautious approach to production, sales and cost management in 2010, whilst anticipating a steady recovery of the industry.
As the world recovers from recession, the global market for polished diamonds has stabilised, and is recovering from the effects of the economic crisis. De Beers is encouraged by initial stronger levels of demand than it witnessed at the same stage in 2009, and history has shown that demand generally rebounds strongly in post-recessionary periods as manufacturers and retailers look to re-build their inventories. De Beers remains cautious as global consumer demand for luxury goods has not yet fully recovered to pre-crisis levels, and will therefore continue to take a prudent approach to production in 2010. Whilst production is planned to increase over 2009 levels, it is not expected to return to historic highs for the foreseeable future. De Beers will continue to focus on cost and capital management, further increasing efficiencies and reducing costs where possible.
China and India are the two priority growth markets for diamonds and are expected to collectively account for one third of global demand by the middle of the decade. De Beers launched the Forevermark™ programme, a proprietary diamond brand, in both the Chinese and Indian markets to support our Sightholder partners in driving demand for diamonds. In the US, consumers were particularly hard hit by the economic downturn. However, our Q4 ‘Everlon’ marketing initiative was received well and trends indicate the downturn has bottomed out with growth over the Christmas season providing encouragement for the world’s largest diamond consumer market.