De Beers Plans 5% Annual Price Increase to Meet Anglo Returns Target
Anglo American’s revenue produced from diamonds comprised approximately 19 percent of their $33 billion total sales in 2013. Anglo owns 85 percent of De Beers, which means they have significant reason behind their new push for even greater returns. Anglo has set the goal for its unit returns on capital at 15 percent by 2016. This has led De Beers’ plans for an annual increase of five percent.
This five percent annual increase decided upon by De Beers represents an evenly graduated increase over the next three years. The company is banking on this graduated increase matching growing demand in the marketplace, creating an essentially seamless increase in prices. Some would even say it’s an increase that may potentially go unnoticed by customers over the long haul. With that, De Beers is not forecasting any additional increases for this current year beyond the five percent it’s already risen.
The U.S. economy’s recovery from the global financial crisis and China’s growing middle class have been attributed as the leading causes for the price more than doubling in the past five years. Rough diamond prices increased by approximately 10 percent this year. “We know the long-term trend, we know demand is going to be bigger than supply. One of the objectives is more stable prices and to drive volatility out. We have a plan to get there. My team is very focused. It’s our one objective, the objective,” says Chief Executive Officer Philippe Mellier.
It’s not just an increase in U.S. demand that will help De Beers drive its price increase. Having suffered a setback in sales in 2013 due to the fall of India’s rupee, De Beers does foresee a rejuvenated India providing a global demand increase of two percent, climbing to 10 percent.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”