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Rapaport TradeWire March 27, 2015
Mar 26, 2015 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
March 27, 2015
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Warning: De Beers $700M March sight destabilizing the market as it severely reduces liquidity and increases supply, while polished demand slumps due to weak currencies, Chinese crackdown and lower oil prices. Sightholders over-buying rough to ensure future supply ahead of April 1 new De Beers contract. Trade is advised to buy polished instead of rough and stop adding fuel to the fire. Basel shows slow. ALROSA 2014 revenue +23% to $3B, loss of $284M. Signet 4Q comps +4%, sales +46% to $2.3B, profit +30% to $228M. Tiffany 4Q sales -1% to $1.3B, profit of $196M vs. $104M loss. Antwerp diamond police chief found with confiscated diamonds, arrested on money laundering charges.
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RapNet Data: Mar. 26
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| Diamonds |
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1,347,543 |
| Value |
$8,086,869,366 |
| Carats |
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1,269,532 |
| Average Discount |
-23.19% |
www.rapnet.com
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| The RapNet Diamond Index (RAPI) has been revised to reflect the average price of the ten best priced diamonds in each category. |
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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RAPAPORT ANNOUNCEMENTS
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QUOTE OF THE WEEK
While the fact that the gold price is quoted in U.S. dollars... its relevance is overstated. Gold’s moves are sometimes linked to the dollar, with the metal often trading inversely to moves in the greenback. Changes in global markets and the structure of the gold market should soften the dollar’s influence on gold in the long run.
Juan Carlos Artigas | World Gold Council
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INDUSTRY
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ALROSA Records a Loss
ALROSA reported a loss of $283.8 million (RUB 16.8 billion) in 2014 as a result of foreign-exchange losses on the company's U.S. dollar-denominated debt, following depreciation of the ruble in 2014.
Revenue from diamond sales grew 23% to $3 billion, while total group sales rose 23% to $3.5 billion. The quantity of gem diamonds sold during the year rose 4% to 39.6 million carats. Group production declined 2% to 36.9 million carats. ALROSA's cost of sales increased 20% to $1.8 billion, while group debt increased 42% to $3.3 billion.
ALROSA noted that the average price of its gem-quality diamonds fell 3% to $171 per carat during the year. In 2014, rough diamond prices peaked at $199.98 per carat in the second quarter.
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Diamond Jewelry Demand +3%
Global diamond jewelry demand rose 2.9% year on year to $81.4 billion in 2014, according to industry insight data published by De Beers. Consumer spending on diamond jewelry continued to rise, despite a fragile world economy, according to Stephen Lussier, De Beers executive vice president of marketing. “The other positive is that retailers across all key diamond jewelry markets are optimistic they will continue to see that level of growth in 2015,” he said.
De Beers revealed
• U.S. diamond jewelry demand increased 7.2% to $37.3 billion.
• Demand in China grew 5.2% to $10.1 billion.
• Demand in India was flat at $3.6 billion.
• Japan’s diamond jewelry demand fell 12.1% to $5.8 billion.
• Demand in the Gulf grew 2.5% to $4.1 billion.
• Everywhere else demand was flat at $20.5 billion.
Data on the U.S., specifically, revealed that market demand is driven by the bridal sector and among affluent consumers who earn more than $150,000 a year.
“The U.S. market is a bit narrower than it was before the 2008 crisis, but those two segments have been pretty healthy,” he said. “Bridal, which accounts for about 30% of U.S. sales, has provided a strong foundation for growth that other competitive products don’t have.”
Growth in China is being driven by expansion into tier III and tier IV cities where income levels and price points tend to be lower, influencing growth in demand for VS-SI diamonds.
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RETAIL & WHOLESALE
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Signet's Comps +4%
Signet Jewelers Ltd. reported that sales rose 45.5% year on year to $2.276 billion in the fourth quarter that ended on January 31 and included the Christmas season. The increase was mainly due to Zale's contribution of $636.7 million. Signet purchased Zale in May 2014. One year ago, Zale reported revenue of $656.4 million for the same period. Signet group's cost of sales surged 49.1% to $1.364 billion and profit rose 30.1% to $228 million.
Same-store sales across the group improved 4.2%, which included revenue from the group's ecommerce channel and that jumped 89.4% to $149.6 million. Comparable-store sales across the Sterling division, which includes Kay, Jared and regional brands, rose 3.7% in the fourth quarter and the Zale division also improved by 3.7%. U.K. division same-store sales jumped 7.6%.
Signet's fiscal year sales increased 36.3% to $5.736 billion, while the cost of sales rose 39.3% to $3.662 billion. The group's profit improved 3.6% to $381.3 million. The value of inventory increased 63.9% year on year to $2.439 billion.
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Tiffany's Comps Flat
Tiffany & Co.'s sales fell 1% year on year to $1.3 billion during the fourth quarter that included the Christmas season and ended on January 31. Same-store sales were flat. Measured on a constant-exchange-rate basis, worldwide sale rose 3% due to growth in Europe and the Asia-Pacific. Profit rose to $196 million, or $1.51 per share, from a loss of $104 million one year ago, which was the result of the company's arbitration with the Swatch Group. Gross margin as a percentage of sales rose to 60.8% from 60.5% one year earlier.
In the Americas, revenue fell 1% to $653 million in the fourth quarter, while comparable-store sales were flat. Across the Asia-Pacific region, sales increased 4% to $284 million and same-store sales rose 3%. Tiffany & Co. noted strong growth in China, Australia and Singapore. Meanwhile, in Japan revenue fell 13% to $148 million and comparable-store sales declined 5%. In Europe, revenue was flat at $162 million, but same-store sales increased 4%.
For the full fiscal year, worldwide sales improved 5% year on year to $4.25 billion, while comparable-store sales increased 4%. On a constant-exchange-rate basis, worldwide revenue rose 7%. Profit increased 167% to $484 million, or $3.73 per diluted share. Tiffany & Co. had recorded a charge of $473 million in the previous fiscal year due to the Swatch arbitration. Gross margin as a percentage of sales increased to 59.7% compared with 58.1% in 2013.
The value of inventory was $2.4 billion as of January 31, representing an increase of 2% from one year earlier.
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U.S. Jewelry CPI Drops
The U.S. consumer price index (CPI) for jewelry fell 3.4% year on year to 165.6 points in February, which was the lowest reading for the month since 2010. Comparatively, the CPI for watches rose 1.4% to 124.18 points in February, which resulted in a new index high for the month.
Meanwhile, diamond prices during February contracted, according to the RapNet Diamond Index (RAPI), the global benchmark for polished prices. RAPI for 1.00-carat diamonds plunged 9.6% year on year, while RAPI for 0.30-carat stones fell 12.7%, RAPI for 0.50-carat dropped 6.5% and RAPI for 3.00-carat diamonds contracted 7.8%.
Gold prices in February softened as the dollar rose against world currencies, leaving the metal about 8% lower than one year earlier. Platinum, on the other hand, remained under tremendous pressure, falling about 18% in February compared with 12 months ago. Silver plunged 15%.
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Christie's Completes Watch Sale in Dubai
Christie's important watches sale that was held in Dubai on March 19 achieved $3.3 million. All 185 lots offered were sold and the sale marked Christie's first 100% sold auction in the Middle East, according to the auction house.
The top lot was a rare platinum and 18-karat pink gold, Patek Philippe minute repeating perpetual calendar Ref 5104P, which sold for $461,000. The watch is the most expensive watch ever sold at auction in the Middle East, Christie's said.
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Stellar Holds Tender in Antwerp
Stellar Diamonds achieved $417,122 from the sale of 4,414 carats in Antwerp. The sale included excellent-quality white stones with a 5-carat rough diamond achieving an average price of $5,000 per carat. The company added that it was pleased with the revenue generated from the sale, especially given that the market for rough diamonds remains very challenging at the moment.
Stellar withheld 1,617 carats from the sale as a result of low bids on those lots. The diamonds will be included in future sales. The company's next rough diamond sale is expected to take place in May 2015.
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Fewer Buyers Attend Basel
Baselworld 2015 closed after eight days, with organizers noting that 1,500 brands unveiled and showcase new innovative creations, while the number of buyers in attendance fell 3% compared with 2014. The show attracted about 150,000 from 100 countries. In addition, Basel has become somewhat of a media staple as a record number of media personnel attended, more than 4,300 journalists from 70 countries, setting a new record. In addition, livestreaming from the show was followed by some 3,000 journalists.
Sylvie Ritter, the managing director of Baselworld, concluded that the show is strengthening its position as "the leader" in tradeshows each year. "This envied and enviable position has to be defended untiringly; that's why Baselworld moves forward every year, improving convenience and impact and never ceases to innovate to meet the constantly evolving requirements," she said.
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GJIIE Attracts More Exhibitors
The 11th edition of the business-to-business Gem & Jewellery India International Exhibition (GJIIE) concluded on March 22, having hosted 300 exhibitors, or nearly 40 more than one year earlier. The show's organizers, UBM India, stated that this platform was important for tapping into the potential of South India's jewelry market.
The diamond pavilion attracted 80 exhibitors, mostly from Gujarat, Mumbai and Hong Kong. Across the entire venue, exhibitors included retailers, artisans and wholesalers that showcased gold, diamonds, pearls, gemstones, silver and allied machinery products. In addition to India-based firms, jewelry exhibitors were also present from Turkey, Dubai, Hong Kong and Thailand. The machinery section of the show attracted manufacturers from Germany, Italy and Japan.
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ABN AMRO to Re-enter India
ABN AMRO Bank is planning to serve clients in India and has received "in principle" approval from India's Central Bank to establish a subsidiary.
The Gem & Jewellery Export Promotion Council (GJEPC) has been lobbying for the bank and made a recommendation to the government to grant a banking license to ABN AMRO.
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Tiffany & Co. Makes 'Best Employer' List
Forbes named the top 500 best employers in the U.S., ranking Google as the most favored place to work, as scored by its employees. Of those companies on the list that sell jewelry, Costco Wholesale not only topped the retail category, but it was scored as the second-best employer overall.
Online auction website eBay, which enables jewelers to sell direct to customers, was ranked at 166, while Nordstrom was ranked at 208. Employees of Coach delivered feedback that resulted in a ranking of 247, Amazon.com was ranked at 329, department store chain Boscov's was ranked at 330, Tiffany & Co. was ranked at 400 and J.C.Penney scored the lowest of all retailers at 494.
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Bonhams Builds Its Jewelry Team
Bonhams confirmed four new appointments to its jewelry division in Los Angeles, New York, Geneva and Hong Kong. Dana L. Ehrman, a graduate gemologist, joined Bonhams in the U.S. as a director of fine jewelry in Los Angeles, where she will be based. In November, Bonhams hired Caroline Bostock as its senior specialist in the jewelry department at the company's U.S. headquarters in New York. In Europe, Claire-Laurence Mestrallet, a graduate gemologist, joined Bonhams as specialist within the international jewelry team based in Geneva. Bonhams Hong Kong hired Ellen Sin, a graduate gemologist, as the director of jewelry and jadeite.
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Suit Seeks Return of 'Princie Diamond'
Heirs of the late Senator Renato Angiolillo sued Christie's International for the return of the "Princie Diamond," which sold for nearly $40 million in April 2013. The suit claims that the diamond still belonged to the family and that Christie's failed to conduct due diligence before selling the stone. Christie’s vowed to defend itself, claiming that ownership of the diamond was properly transferred under Swiss law and the suit stemmed from a highly contentious inheritance dispute between family members.
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U.S. Affluent Spending Drops for Luxury
Unity Marketing revealed that affluent U.S. consumers spent 26.5% less on luxury goods in the first quarter of 2015 compared with the fourth quarter of 2014. However, in the group's recent Luxury Consumption Index, which measured the spending habits of those with an average income of $266,900, economic confidence improved.
"This is the 'luxury drought,'" said Pam Danziger, the president of Unity Marketing, who authored the new report. "People with high incomes have changed their shopping habits, focusing on brands that represent a good value, rather than high-status brands."
Danziger told luxury goods marketers that they must regroup and understand how to appeal to affluent consumers since "luxury" has grown into a negative theme.
Marketers must convince affluent shoppers that a product is "worth the price," since premium logos no longer interest consumers and high-quality merchandise is readily available to everyone online.
"Technology is leveling the playing field for competitors. It is the ultimate democratic force for consumers. It equalizes all through the power of information," Danziger said. "By contrast the whole concept of luxury brands is based upon a plutocratic idea, or power and influence based upon wealth and prestige. With the idea of luxury brands the ultimate 'smoke and mirrors' of marketing, techno-powered consumers can now pull back the curtain and uncover the myths behind these brands."
Affluent consumers are choosing function and performance over ostentatious style, giving emerging luxury brands a foothold that almost didn't seem possible a decade ago. Affluent consumers are also valuing a personal connection with the artists and designers of those products they buy, driving growth for such brands as jeweler Alex and Ani and platforms such as Etsy. Furthermore, a cultural desire for "responsible consumerism" is creating opportunity for fair trade products.
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Police Arrest Antwerp Dealer
Antwerp police arrested a 57-year-old diamantaire on suspicion of diamond fraud in connection with the investigation of a federal police commissioner who was suspected of money laundering, according to the Public Prosecutor's office of Antwerp.
The commissioner, Agim De Bruycker, who was detained on March 20, was responsible for investigations into diamond industry fraud and he headed the Diamond Squad. He was arrested after authorities allegedly found $549,542 worth of diamonds and gold on his property and $54,954 in cash. Bruycker, 46, allegedly declined to clarify how he had obtained the diamonds and gold.
While the Antwerp World Diamond Centre (AWDC) declined to comment on the specifics of both arrests, they hoped that the judicial investigation is quickly clarified.
According to reports from the Belgian press, Bruycker allegedly claimed that he kept diamonds that belonged to the arrested diamond dealer at his home in an effort to conceal them from tax authorities.
Belgian press also alleged that there have been numerous irregularities in Bruycker's department and that Brussels authorities recently reopened a diamond fraud case dating back to 2004 that involved two Antwerp firms that had been cleared of any wrong doing.
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MINING
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Merlin Receives $5M
Merlin Diamonds Limited received a refund of approximately $4.5 million in relation to a research and development expenditure grant for new mining techniques at the company's flagship Merlin diamond mine in the Northern Territory, Australia. The company confirmed that these funds, from the Australian Taxation Office (ATO), provide a significant portion of the capital required to bring the mine into production.
Over the past 12 months, Merlin has completed a bankable feasibility study on the Merlin diamond mine and it plans to recommence mining kimberlite ore from eight existing open pits this year.
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ALROSA Approves Field Plan
ALROSA’s executive committee approved the development of the Verkhne-Munskoye field during the first half of this year. The project involves building a new diamond mining enterprise, anticipates an annual capacity of 3 million tons of ore and expects to process the ore at the Udachny mining and processing division's plant №12.
The Verkhne-Munskoye primary deposit is located about 160 kilometers from the Udachny plant. The deposit includes four kimberlite pipes with aggregate mineral reserves of 65 million tons of ore. According to ALROSA's current production plan, mining operations at the Verkhne-Munskoye will begin in 2018 and reach its design capacity in 2019.
The committee also decided to transport ore from its Zarnitsa pipe to the processing facilities of Udachny using line-haul trains.
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Peregrine Transfers Three Projects
Peregrine Diamonds Ltd. transferred the Lac de Gras project in the Northwest Territories and the Nanuq and Nanuq North properties in Nunavut to its wholly-owned subsidiary, Peregrine Exploration Ltd. In addition, Peregrine Diamonds granted Peregrine Exploration an exclusive license to utilize its North American diamond exploration database, which includes information from over 38,000 kimberlite indicator mineral samples that have been collected across Canada over a 10 year period.
The Lac de Gras project hosts the nine hectare DO-27 kimberlite, which has an indicated mineral resource of 18.2 million carats and is open at depth, according to Peregrine Diamonds. The Nanuq and Nanuq North properties currently host four diamondiferous kimberlites and the company considers it to have excellent exploration potential.
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Botswana Diamonds Receives New License
Botswana Diamonds was awarded a new prospecting license in the Orapa region of Botswana as part of the company's ongoing exploration joint-venture with ALROSA. The Botswana government granted the license to Atlas Minerals, the local subsidiary of the two companies. The license covers 316-square-kilometers directly northwest of PL 207, which is already held by the joint venture.
John Teeling, the chairman of Botswana Diamonds, noted that the new license is a small but important step as the company concentrates on specific targets in the area. "We feel that there is a very good chance that unknown kimberlites exist in the area covered by our existing block PL 207 and the new block PL 085," he said.
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ECONWATCH
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Diamond Industry Stock Report
Industry firms came under pressure, driving stock prices lower for 32 of 50 public companies on the global Rapaport Stock Watch list. Some exceptions were Blue Nile (+3%), Signet (+7%), Lucara (+5%), Rockwell (+10%) and Anglo American (+3%). View the detailed industry stock report.
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Mar. 26 |
Mar. 19 |
Chng. |
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| $1 = Euro |
0.918 |
0.939 |
-0.021 |
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| $1 = Rupee |
62.84 |
62.52 |
0.3 |
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| $1 = Israel Shekel |
3.96 |
4.04 |
-0.08 |
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| $1 = Rand |
11.99 |
12.32 |
-0.33 |
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| $1 = Canadian Dollar |
1.25 |
1.27 |
-0.02 |
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| Precious Metals |
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| Gold |
$1,204.10 |
$1,171.90 |
$32.20 |
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| Platinum |
$1,150.00 |
$1,121.00 |
$29.00 |
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| Stock Indexes |
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Chng. |
| BSE |
27,457.58 |
28,469.67 |
-1,012.09 |
-3.6% |
| Dow Jones |
17,678.23 |
17,959.03 |
-280.80 |
-1.6% |
| FTSE |
6,895.33 |
6,962.32 |
-66.99 |
-1.0% |
| Hang Seng |
24,497.08 |
24,468.89 |
28.19 |
0.1% |
| S&P 500 |
2,056.15 |
2,089.27 |
-33.12 |
-1.6% |
| Yahoo! Jewelry |
1,343.14 |
1,350.95 |
-7.81 |
-0.6% |
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INDIA MARKET REPORT
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Polished Trading Activity
Trading activity in the local polished market remains at a low level, but sentiment has stabilized after a nervous two weeks. The financial year ends this week for many firms and payments are slower, which isn't helped by tight liquidity.
Read the polished diamond trading report.
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