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Rapaport TradeWire June 26, 2015
Jun 25, 2015 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
June 26, 2015
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Markets slow with low expectations for June Hong Kong show. Bargain hunters making low offers for popular VS-SI larger goods but suppliers holding back due to shortages and high replacement costs. Selective buyers filling orders forced to pay good prices, flexible inventory buyers getting very good deals. 30s and 40s weak and under pressure as China underperforms. Caraters showing life with improving demand. Indian liquidity tight and getting tighter with reports of approximately $100M Godhani Gems insolvency and additional smaller financial failures. U.S. May jewelry sales +0.5% to $6.3B, watch sales -0.7% to $831M. Luk Fook FY revenue -17% to $2.1B, net profit -13% to $209M.
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RapNet Data: June 25
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| Diamonds |
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1,390,737 |
| Value |
$8,508,655,313 |
| Carats |
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1,354,585 |
| Average Discount |
-26.04% |
www.rapnet.com
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| The RapNet Diamond Index (RAPI) has been revised to reflect the average price of the 10 best priced diamonds in each category. |
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Due to the subjective nature of gem grading, it is widely accepted that a difference of up to one grade in color and clarity should be tolerated. This has already been established as the industry norm and we are reiterating the importance that our members should adhere to that norm to ensure continued consumer confidence in diamonds.
Ernie Blom | WFDB
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INDUSTRY
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Video: Industry Insights From Rapaport and Lussier
The annual Rapaport "State of the Diamond Industry" presentation, hosted by the chairman of the Rapaport Group, Martin Rapaport, at the JCK Vegas show provided strategic insights that attendees need to understand, the outlook for diamond demand and supply, as well as a forecast of prices going into the Christmas season. In addition, a special presentation by Forevermark's CEO, Stephen Lussier, focused on “The Diamond Dream,” with insight and a thorough analysis of why consumers buy diamonds and how retailers can sell more diamonds by participating in the dream. Lussier also presented his views of what the diamond trade can and should do to increase consumer desire for diamonds. Watch Now.
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KP Sets to End Vice Chair Dispute
At the Kimberley Process (KP) plenary this week in Angola, an eight-month long impasse for vice chair between Australia and Dubai continued and it was expected that Australia would deliver a message before the close of the meeting to "break the dispute," according to chairman Bernardo Campos. He stressed the need for continued consensus in supporting a single candidate for the vice chair role.
Radio France Internationale reported that the Central African Republic (CAR) requested a partial lifting of the diamond embargo so that companies in the western half of the nation may resume rough trading. CAR's minister of mines, Joseph Agbo, told delegates that the western half of the nation met KP criteria for exporting rough. Stability had returned and the state has gained full control away from rebels. "We identified traditional miners, workers who are registered and who have updated their licenses and have their cards," he said.
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RETAIL & WHOLESALE
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U.S. Jewelry, Watch Sales Flat
U.S. jewelry and watch sales across all channels were flat in May, up just 0.4% year on year, at $7.1 billion as estimated from preliminary government figures. According to Rapaport News calculations, jewelry sales rose a touch, up 0.5%, to $6.3 billion, while sales of watches fell 0.7% to $831 million during the month. Even though estimates were largely unchanged from May 2014, the very slight improvement broke a seven-month streak of sales declines for the sector.
Jewelry and watch sales for the first five months of the year have decline 0.6% year on year to $28.7 billion, according to Rapaport News estimates. Jewelry sales have fallen 0.5% to $25.4 billion, but watch sales have weighed more on the sector, contracting 1.9% to $3.4 billion.
Meanwhile, sales just from U.S. specialty jewelry stores for the first four months of the year have registered a more severe decline, falling 4.7% year on year to $8.5 billion. Totals for the month of May are scheduled for release on July 14.
Advanced sales estimates for May at U.S. department stores continued to slide, falling 3.2% year on year to $13.6 billion. But weak consumer spending also permeated across the retail and food sector -- excluding motor vehicles and auto parts -- as sales were flat at $364.03 billion. Retail trade sales improved 2%. Nonstore retail sales rose 6% to $37.681 billion.
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Luk Fook's Profit -13%
Luk Fook's revenue declined 17% year on year to $2.05 billion (HKD 15.92 billion) during the fiscal year that ended on March 31. Group profit fell 13% to $209 million as an economic slowdown in China, currency depreciation and relaxed visa requirements for Chinese tourists traveling to other luxury shopping destinations weighed on the retailer.
Luk Fook's revenue from Hong Kong, Macau and overseas slid 20% to $1.54 billion, while sales in Mainland China dropped 5% to $516 million. However, wholesale revenue in Mainland China increased 12% to $238.8 million. Luk Fook opened 111 stores (net) in Mainland China during the year, three shops in Hong Kong and its first store in South Korea. As a result, the group now has a sales network of 1,383 stores across Mainland China, Hong Kong, Macau, Singapore, South Korea, the U.S., Canada and Australia.
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India's Industry Outlook Stable
India Ratings & Research, a Fitch Group Company, maintained a "stable outlook" for the country's gems and jewelry exporters and retailers for the fiscal year that ends in April 2016. But the group noted that the outlook overall is brighter for India's retailers. Revenue growth for the sector's exporters is expected to remain muted given mixed global demand for jewelry and gems. India Ratings anticipates an average rate of growth of between 3% and 5%, while the average earnings before interest, taxes and amortization (EBITDA) margins could increase by 100 to 200 basis points as processing margins improve -- due to a "moderation" in rough diamond prices.
Across India's jewelry retail industry, India Ratings anticipates revenue growth of between 10% and 12% as consumers increase spending and favor shopping at organized retailers. EBITDA margins are likely to improve 100 to 300 basis points on average, given the removal of the 80:20 gold scheme and the reinstatement of gold lease scheme, which lowers the price risk on inventory.
India Ratings expects credit availability to remain constrained as banks have become selective in lending due to loan defaults and their own industry's restructuring.
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London Bourse Secures Warehousing
The London Diamond Bourse (LDB) established a customs-approved warehouse facility for its members, in partnership with Malca-Amit U.K. Ltd. The facility enables customers to suspend the payment of customs duties at the point of entry, giving bourse members the flexibility to store goods for approval, to bring goods into free circulation (once duty and valued-added tax are paid) or to re-export goods to another destination. Victoria McKay, LDB’s chief operating officer, explained the new service will provide an economic boost to the diamond industry in the U.K. and begin a movement away from an approbation market.
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Trade Groups Frame New Color Grade Policy
The World Federation of Diamond Bourses (WFDB), the International Diamond Manufacturers Association (IDMA) and CIBJO jointly adopted a new policy on color grading for polished diamonds.
Industry standards and nomenclature are based on master color sets (D-Z scale) of the Gemological Institute of America (GIA) and the International Diamond Council, so the color grading of a diamond "more than one grade" from a broadly accepted industry benchmark is unacceptable.
In the event of a challenge to a grade, brought to the bourse (including through mediation or arbitration), the acceptable standard will be applied and, in addition, it will submit the diamond to a leading, respected laboratory or to three recognized expert gemologists or diamantaires who qualified to provide a report on any diamond in question.
If an independent examination confirms that a breach occurred, all necessary measures will be taken, including possible disciplinary action. While local laws also prevail in all instances, the WFDB, CIBJO and IDMA are considering legal advice from different jurisdictions as to the integration of national, state and municipal laws in the policy.
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UPS Capital Acquires Parcel Pro
UPS Capital, a subsidiary of UPS, acquired Parcel Pro, an independent logistics provider to the jewelry, wristwatch and collectibles industries. Ronald Chang, the president of UPS Capital, explained the acquisition enhanced its supply chain risk mitigation capabilities. "Many jewelry retailers have insurance policies that cover their inventory, but shipping losses are not always covered by these policies," he said.
UPS Capital and Parcel Pro together are able to insure shipping within the U.S. for up to $150,000 in value per package and internationally to selected countries for up to $100,000 per package.
Parcel Pro’s proprietary technology platform provides online tracking and visibility, e-reporting, web access and shipping, including via smart phone applications and it has physical locations in New York, Los Angeles, San Francisco, Miami, Hong Kong, Tokyo and Singapore.
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Gemfields Ruby Auction Earns $29M
Gemfields reported that it earned $29.3 million from the auction of 47,451 carats of higher-quality rough rubies in Singapore from June 16 to 21. The average price realized was $617 per carat, 10% lower than the December average price per carat. The untreated rubies offered this month were 66% sold by weight and demand "remains very healthy," according to Ian Harbottle, the CEO of Gemfields. Thailand-based Veerasak Gems purchased a pair of matching rough rubies that weighed a combined 45 carats, however, the selling price was not disclosed.
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MINING
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ALROSA Lowers Debt
In the past week, ALROSA repaid Series 20–23 commercial bonds of $185 million (RUB 10 billion) that were placed on Moscow Exchange in June 2010. According to a company statement, the bonds were repaid through a liquidity source of cash that had accumulated earlier on bank deposits. As a result of the transaction, ALROSA reduced its loans and borrowings from $3.5 billion to $3.3 billion.
In October, ALROSA intends to repay ruble bonds series BO-01 and BO-02 that were placed in October 2012, also totaling $185 million (RUB 10 billion). The payment will be possible through cash that is currently accumulating on bank deposits of more than $683 million (RUB 37 billion).
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Namibia, De Beers Agree to New Terms
Namibia and De Beers reportedly negotiated new terms of its partnership, allowing for a greater amount of rough diamonds to be polished in the country. An official announcement was to be made at a later date. The Namibian newspaper reported that President Hage Geingob and the CEO of De Beers Group, Philippe Mellier, where "happy" with the new proposal that requires up to 30% of locally mined rough diamonds to be offered to local manufacturers.
Mellier confirmed there were dozens of years’ worth of diamond mining remaining for the nation's seabed.
Namibia’s Cabinet requested new terms, seeking to boost local diamond factory output and it requested an entire range of special-sized stones to be made available. Namibia and De Beers each hold a 50% stake in Namdeb and the standing agreement allows for 10% of rough diamonds to be supplied locally. Namdeb produced 1.8 million carats in 2014, while marine operations resulted in 1.2 million carats.
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Rockwell's Production, Sales Slide
Rockwell Diamonds production dropped 50% year on year to 4,614 carats in the first quarter that ended on May 31. Production declined for the company's contractor-run and owned diamond properties during the quarter. Diamond sales fell 23.7% to $6.69 million; however, the price of goods rose 9.1% to $1,432 per carat. During the period, Rockwell completed the acquisition of the Remhoogte/Holsloot project in the Middle Orange River region of South Africa.
James Campbell, the CEO, defined the quarter as "very challenging," given the closure of some operations; however, the focus remains on Remhoogte/Holsloot and advancing Lanyonvale and Wouterspan development projects with the objective of replacing Saxendrift's production as it reaches the end of its economic life. The company is finalizing a plan to raise equity funding to repay a bridge loan provided by Diacore and its chairman, Mark Bristow. With new operations in place "we have significantly derisked the financing aspect of the transaction. We believe that these new projects, together with our exciting development projects, present potential investors with an attractive entry point," Campbell said.
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Paragon Seeks to Hasten Mothae Deal
Paragon Diamonds Limited raised $794,000 (GBP 500,000) in unsecured debt financing from an investment company to initiate a share buyback program and to support working capital needs as the junior mining company awaits approval to acquire the Mothae diamond project in Lesotho.
While the Mothae purchase from Lucara Diamond Corporation is largely expected to proceed, Paragon's chairman, Philip Falzon Sant Manduca, planned to meet Lesotho's Minister of Mines, seeking "immediate approval" of the deal in order to begin diamond production as soon as possible.
Paragon agreed, in principle, to a $26 million funding package with International Triangle General Trading (ITGT) LLC of Dubai to fund Mothae and its existing Lemphane kimberlite simultaneously. Paragon believes that the two projects will create significant employment opportunities for local residents and generate substantial revenue for the government.
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Firestone Reports Delay at Liqhobong
Firestone Diamonds delayed opening the Liqhobong mine in Lesotho to the fourth quarter of 2016, while confirming that construction costs would remain within budget. Previously, the mine was to be completed by the end of the first half of 2016 at a cost of $185.4 million. Firestone reported that $68.5 million (ZAR 830 million) had already been spent on the project as of May 31. Project costs would increase by $12.9 million as a result of the need to remove an increased quantity of overburden from the plant site and delays caused by uncooperative weather, but foreign exchange gains recover the difference.
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ECONWATCH
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Diamond Industry Stock Report
Industry retail and wholesale shares mainly higher. Gains outnumber losses in the U.S., Far East, Europe and India led by JCPenney (+6%), Chow Sang Sang (+3%), LVMH (+7%) and Rajesh Exports (+18%). Mining shares mostly lower, however, as Dominion (-6%) and Gemfields (-5%) led declines. View the detailed industry stock report.
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June 25 |
June 18 |
Chng. |
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| $1 = Euro |
0.893 |
0.879 |
0.014 |
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| $1 = Rupee |
63.57 |
63.62 |
0.0 |
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| $1 = Israel Shekel |
3.78 |
3.82 |
-0.04 |
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| $1 = Rand |
12.10 |
12.25 |
-0.15 |
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| $1 = Canadian Dollar |
1.23 |
1.22 |
0.01 |
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| Precious Metals |
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| Gold |
$1,172.80 |
$1,201.90 |
-$29.10 |
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| Platinum |
$1,084.00 |
$1,081.00 |
$3.00 |
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| Stock Indexes |
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Chng. |
| BSE |
27,895.97 |
27,115.83 |
780.14 |
2.9% |
| Dow Jones |
17,890.36 |
18,115.84 |
-225.48 |
-1.2% |
| FTSE |
6,807.82 |
6,707.88 |
99.94 |
1.5% |
| Hang Seng |
27,145.75 |
26,694.66 |
451.09 |
1.7% |
| S&P 500 |
2,102.31 |
2,121.23 |
-18.92 |
-0.9% |
| Yahoo! Jewelry |
1,279.97 |
1,265.49 |
14.48 |
1.1% |
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INDIA MARKET REPORT
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Polished Trading Activity
Demand and trading activity remains slow in local polished market. Currently, the focus is on the Hong Kong show, with mixed expectations. The market is facing very tight liquidity. Read the polished diamond trading report.
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