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Rapaport TradeWire September 19, 2014
Sep 18, 2014 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
Sept. 19, 2014
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Sharp improvement in market sentiment as HK show exceeds low expectations. Strong visitor traffic but sales not booming due to stiff buyer price resistance. Sellers that reduce prices are selling with some manufacturers lowering prices to generate cash flow as Indian liquidity is tight. Steady demand for G-J, VS-SI goods, high-end, D-F, VVS+ very weak. Chinese jewelry demand stable ahead of October 1 Golden Week. De Beers says global diamond jewelry demand +3% to $79B in 2013. Hong Kong 1H polished imports +9% to $9.7B, polished exports +17% to $6.8B. India Aug. polished exports -19% to $1.9B, rough imports +27% to $864M. Petra Diamonds sells 122.52ct. blue rough stone for $28M ($225K/ct.).
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RapNet Data: Sept. 18
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| Diamonds |
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1,322,255 |
| Value |
$7,864,464,819 |
| Carats |
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1,402,460 |
| Average Discount |
-27.02% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
While Petra's $27.6 million blue diamond sale is less than the $35 million to $40 million I had in my figures, given that the company does share in the upside it is not a disastrous number. Colored stones are particularly difficult to price given the intensity of the color can lift the value by a factor of 10 times relative to an equivalent white.
Alison Turner | Panmure Gordon
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Careers@Rapaport
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The Rapaport Group is growing rapidly. If you wish to work with the best and brightest, join us. We have great opportunities for trading managers, gemologists, sales assistants and entry-level positions for our offices in New York, Antwerp and Mumbai. View jobs now.
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INDUSTRY
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Petra Sells 122.52-Ct. Blue Diamond
Petra Diamonds sold a 122.52-carat blue diamond recovered from its Cullinan mine for $27.6 million, or $225,269 per carat, to a beneficiation partnership, which is 85% owned by an unnamed diamond manufacturer. Petra owns 15% of the firm, resulting in a cash payment of $23.5 million for the sale. Petra will record this sum as revenue in its first quarter of fiscal 2015. Once the stone has been cut and polished, it will be re-sold at which time Petra will receive its share of the proceeds after beneficiation and related expenses.
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Hong Kong Show Meets Dealer Expectations
Diamond trading at the Hong Kong Jewellery & Gem Fair held steady this week with strong visitor traffic observed. Diamond dealers were prepared for a drop in traffic to the loose stone area as the finished jewelry venue opened on September 17.
Diamond exhibitors noted that buyers were looking for specific items to fill existing orders and avoided high-volume orders. There was generally good demand for G-J, VS-SI goods in all sizes, with strong demand for nice-make, triple EX diamonds. Prices were relatively steady, if slightly softer, on most items with some larger companies looking to generate cash to ease their liquidity concerns.
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RETAIL & WHOLESALE
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Richemont Observes Weaker Growth
Richemont estimated that sales growth was subdued during the five months that ended on August 31, rising just 4% year on year at constant-exchange rates, or 1% at actual exchange rates. The group did not provide hard totals, but it noted that sales were impacted negatively by the weakening of the dollar and the yen against the euro. Jewelry sales rose by 2% year on year, while watch sales grew by 4% during the five-month period. The company explained that Cartier's jewelry sales continued to outperform watch sales, which suffered from weak demand and destocking particularly in Asia-Pacific. Richemont will report interim results on November 7.
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U.S. Jewelry Store Sales +8%
U.S. jewelry store sales jumped 8% year on year to $2.37 billion in July, according to the government's retail survey. The increase for jewelry stores was stronger than the overall jewelry and watch sector, which recorded a preliminary increase of 4.3% to $5.576 billion in July. Jewelry store sales for the first seven months of 2014 have risen 4.8% year on year to $17.704 billion. Meanwhile, jewelry and watch sales across all retail outlets has risen 2.6% to $40.021 billion, as estimated by Rapaport News.
Advanced estimates for sales at U.S. department stores in August continued to show a slow and steady decline, as has been the case for most of the past two years. Department store sales fell 1.5% year on year to $14.028 billion in August; however, retail and food sales during the month rose 5% to $444.4 billion. Retail trade sales rose 4.8%. U.S. chain-store sales in August increased 5.2% on a same-store sales basis, according to the International Council of Shopping Centers (ICSC), primarily due to back-to-school spending.
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U.S. Jewelry CPI -5%
The U.S. consumer price index (CPI) for jewelry declined 4.7% year on year to 171.87 points in August. The reading was one-tenth of a point lower than July, but still higher compared with the lowest reading of the year when the index was 169.36 points in May. The CPI for watches, meanwhile, rose 4.5% to 122.41 points, after marking its highest reading of the year at 123.58 points in July.
Precious metals prices for the jewelry sector have come under pressure recently, contributing to a declining CPI in the past several months. The average price of gold was about 2% lower in August compared with one year ago and platinum was basically flat. However, polished diamond prices were mixed in August. The RapNet Diamond Index (RAPI), the global benchmark for polished diamond prices, fell 4.7% year on year for 1-carat diamonds in August, while RAPI for 3-carat diamonds dropped 2.6%. RAPI for 0.30-carat diamonds jumped 9.9% and the index increased 7.8% for 0.50-carat stones.
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Invest to Sustain Long Term Growth
De Beers estimated that global diamond jewelry sales rose 3.4% year on year to $79 billion in 2013 and that consumer demand will continue to increase, pressuring rough supplies, especially by 2020 and beyond. Sales of polished diamonds in the U.S. increased 7%, while both India and China have experienced a compound annual growth rate of 12% in local currency terms between 2008 and 2013.
In launching the "Diamond Insight Report" at the Hong Kong show this week, De Beers CEO, Philippe Mellier, said the industry must address the risks and opportunities in order to compete with other luxury sectors. The share of diamond advertising, for example, in the U.S. has been reduced by almost half since 2007. Over the same period, the fashion and electronics industries grew their share of advertising. Online engagement has also become an important channel, further altering consumer buying habits. China, for example, is the world’s fastest growing market for diamond jewelry and more than one quarter of all Chinese buyers research their purchase online in advance.
Stephen Lussier, the CEO of Forevermark, told retailers not to underestimate an opportunity to tell the story about diamonds to consumers online, while building a solid brand image to stoke future growth. De Beers estimated that an eventual imbalance between rough and polished supplies will plateau in the second half of this decade before rough supplies begin to decline from year 2020 forward. The cost of mining diamonds is becoming more prohibitive and as supplies from existing mines decrease, mining will become increasingly complex and remote, driving up costs.
Substantial investment will be required in diamond production, technology and branding, marketing and retail standards if the industry is to sustain its recent levels of growth.
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CARE Reaffirms Rating on Suashish
CARE Ratings reaffirmed its single A minus (A-) rating on the approximately $69.7 million (Rs. 425 crore) bank facilities of Suashish Diamonds Ltd. The rating reflected the diamond firm's extensive industry experience, healthy financial risk profile marked by a healthy net worth, a comfortable overall gearing and robust debt protection metrics, according to CARE's statement. The rating was offset by the firm's substantial investment exposure to group companies, declining sales trends over the past three years, susceptibility of margin movements due to foreign currency exchange rates, strong competition and subdued demand for cut and polished diamonds.
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Chow Tai Fook Debuts 'Reflections of Siem'
Chow Tai Fook Jewellery Group Ltd. previewed its "Reflections of Siem" collection to highlight its fourth annual high jewelry brand campaign. The event took place at Singapore's iconic ION Sky, atop the luxurious ION Orchard shopping mall and it marked the first collection debut in Singapore for Chow Tai Fook. Reflections of Siem was inspired by history and local folklore of Cambodia and featured 12 sets of jewels. The collection celebrates the enduring Khmer spirit, while showcasing the best of Chow Tai Fook's gemstone selection, artistry and craftsmanship in the realm of couture jewelry.
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Parikh Bros. to Manufacture GSR Stones
Golden Saint Resources (GSR) Ltd. entered into a memorandum of understanding with Parikh Brothers of Mumbai to process, cut and polish rough diamonds from alluvial mining in Sierra Leone. The agreement also includes assistance for the resale of rough and polished diamonds. Processing of each rough shipment must be completed within 90 days unless otherwise agreed.
In August, Golden Saint Resources recovered four yellow stones with approximate sizes of 2.30 carats, 4.20 carats, 10 carats and 10.34 carats and its directors believed that these early recoveries were a promising sign for future artisanal production. Terms of this particular license agreement state that the company retains 70% of revenue and the landowner receives 30%.
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Quadamas Introduces 'AsscherQueen'
Diamond manufacturer Quadamas Inc. introduced the “AsscherQueen” diamond to the U.S. market in August. The company holds six U.S. patents on this new cut, which it described as a creative extension of the Asscher cut Princess (AcP) line. The “AsscherQueen” diamond will be available in loose stones from 3.1mm and up calibrated, as well as 0.50 carat and larger stones starting from M and S12 on up to higher grades, each with its own certificate from the Gemological Institute of America (GIA) and an “AsscherQueen” logo laser inscribed on the girdle.
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New Tiffany Masterpieces Debuts
The latest collection from Tiffany & Co. marks the debut of a number of modern Tiffany Masterpieces and was created by the brand's design director, Francesca Amfitheatrof. Several pieces are inspired by archival jewels of diamonds set in square bezels that are delicately linked, while some take a cue from the linearity and fluidity of 1920s design.
Amfitheatrof combined a mixture of custom cut princess, baguette and round brilliant diamonds for the collection's necklaces and bracelets. Defining this fall 2014 collection, Tiffany & Co. stated that a current flows through the jewels, driven by the stone's firepower. Tiffany Masterpieces include earrings of radiant diamond tiers, bracelets in open weaves, medallions and tassel pendants with diamonds and seed pearls. Rings feature rare colored diamonds, capturing saturated hues from yellow and purplish pink to bluish green.
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Pandora Steps Up Expansion in Japan
Pandora Jewelry signed an agreement to take over the majority of Bluebell's Pandora-related assets in Japan in a non-cash transaction with the deal taking effect on January 1, 2015. Currently, Bluebell owns and operates one concept store and seven shop-in-shops. The agreement is subject to certain conditions; however, Pandora expects it will accelerate its own store roll out in Japan, enhance expansion and make significant marketing investments in that market. Bluebell will contribute to deal with its knowledge and insight into the retail and real estate markets and the Japanese consumer.
The two company's relationship goes back to April 2013, when Pandora authorized Bluebell's exclusive distribution rights in Japan. The Japanese jewelry market had a value of about $9 billion (JPY 961 billion) in 2013, up 6% from 2012, according to Pandora.
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Court Seizes Zimbabwe Goods in Belgium
Zimbabwe's Mines Minister, Walter Chidhakwa, said rough diamond auctions would begin locally in November to maximize revenue and protect the country's assets, according to the state-run Herald. About $45 million worth of rough diamonds from Zimbabwe were seized in Belgium this week during a preplanned tender, following a court order in an unrelated lawsuit brought by Amari Platinum Holdings Ltd. of South Africa. Chidhakwa said the government sent a team of lawyers to Belgium to plead its case and seek the release of the diamonds. Amari sued Zimbabwe in 2010 following the cancellation of its platinum mining agreement with the Zimbabwe Mining Development Corporation (ZMDC). Chidhakwa stated that ZMDC does not own diamonds outright, so the seizure was not legal because those stones belonged to independent mining companies.
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MINING
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Petra's FY Profit Surges
Petra Diamonds' revenue increased 20.2% year on year to $471.8 million for the fiscal year that ended on June 30. Group profit jumped to $67.5 million compared with $27.9 million one year earlier. Diamond inventory fell 14.3% to $27 million and the company's net debt rose 3.4% to $124.9 million. Production during the fiscal year increased 17% to 3.1 million carats.
Petra Diamonds concluded that the rough diamond market performed well during the course of the period, with prices improving about 10% during the second fiscal half. Petra anticipates that rough demand will continue to strengthen over the course of its current fiscal year due to constrained supplies, robust U.S. demand and accelerated growth from emerging markets such as China and India. Due to the favorable market dynamics, Petra expects higher prices through 2015.
Production for the current fiscal year is expected to achieve 3.2 million carats, while Petra's expansion plans remain on track to increase production to 5 million carats by 2019.
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Stornoway Reports 1Q Loss
Stornoway Diamond Corporation reported a loss of $11.5 million during the first quarter that ended on July 31, and the company held cash and cash equivalents on hand of $438.3 million. The junior mining company completed a $946 million financing deal during the period for its Renard diamond project. In addition, Stornoway initiated construction, procured equipment entered into an engineering, procurement and construction management contract with SNC Lavalin Inc., including sub-contracted services to be provided by AMEC Americas Ltd. and DRA Americas Inc.; and confirmed the Renard 2 kimberlite extends to a vertical depth of at least 970 meters -- 370 meters below the base of its current mineral reserve.
Mine development capital expenditures for the Renard project were $24.3 million during the period, against a total project capital cost estimate of $811 million. Stornoway's net loss for the period related to mainly finance costs, a foreign exchange gain, the recognition of changes in the estimated fair value of embedded derivatives associated with the corporation's financing as well as transaction fees attributed to these derivatives.
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Kennady to Raise $5M
Kennady Diamonds Inc. is arranging a non-brokered private placement to raise approximately $5 million through the issuance of common shares at a price of $6.50 each. The placement is expected to close on or about September 30 and is subject to regulatory approval.
Kennady Diamonds' major shareholder, Bottin International Investments Ltd., is subscribing for 538,000 common shares for gross proceeds of approximately $3.5 million. Proceeds from the entire placement will be used to fund Kennady's summer and fall exploration program and for general corporate purposes.
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Diamcor Receives Mining Rights
Diamcor Mining Inc. received a 30-year term mining right for the Krone-Endora at Venetia project this week from the South African Department of Mineral Resources. The deal also grants Diamcor the exclusive right to mine and recover diamonds over areas initially targeted, encompassing 657.71 hectares of the project's total area of 5,888 hectares.
The company has submitted an application for a mining right over the remaining area. With the mining right in place, the company will advance the project to the next stage of development.
Diamcor acquired the project from De Beers in February of 2011 through its South African subsidiary, DMI Minerals South Africa (Pty.) Ltd., which is 30% owned by a black economic empowerment partner, Nozala Investments (Pty.) Ltd. Nozala is a women owned business, representing 500,000 rural women shareholders.
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Lucara Receives Licenses
Botswana's Ministry of Minerals, Energy and Water Resources granted Lucara Diamond Corp. two prospecting licenses near the Orapa kimberlite field. Both prospecting licenses are in close proximity to the Karowe diamond mine and host known diamondiferous kimberlites. One license, block A, or the BK2 license, is located 30 kilometers to the east of Lucara's Karowe mine and has a surface area of 5.9 acres. The other, block E, is located immediately to the south and east of Debswana's Orapa mine and 15 kilometers to the north of Karowe. The prospecting license holds four known kimberlites, namely AK11, 12, 13, and 14.
The company plans to begin work on both license areas as soon as all permits and approvals are in place.
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BD, ALROSA Begin Drilling
Botswana Diamonds (BD) reported that it will begin drilling on its joint licenses with ALROSA in the Orapa region of Botswana within 10 days. A seven person geological team from ALROSA recently arrived in Botswana for the work and is on site to lead the Botswana team.
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Gemfields to Explore Sri Lanka
Gemfields Plc formed a joint venture East West Gem Investments Ltd. (EWGI) to explore sapphire and gemstones in Sri Lanka. Under the agreement, the joint venture will operate through three Sri Lankan subsidiaries. Gemfields will hold a 75% stake in the project with EWGI holding the remaining 25%. Gemfields said it acquired its operating interest in 16 exploration licenses of diverse minerals for $400,000. The company will also establish a gemstone trading company named Ratnapura Lanka Gemstones Pvt. Ltd. with the aim to focus on sourcing rough sapphires from various resources in the local market.
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STATS
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India
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Aug. $Mil. |
%Chng. |
YTD $Mil. |
%Chng. |
| Polished exports |
$1,920 |
-19% |
$13,897 |
-4% |
| Polished imports |
$511 |
-3% |
$4,511 |
-8% |
| Net exports |
$1,409 |
0% |
$9,386 |
-2% |
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| Rough imports |
$864 |
27% |
$12,069 |
10% |
| Rough exports |
$116 |
-14% |
$1,037 |
-21% |
| Net imports |
$748 |
22% |
$11,032 |
11% |
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| Net diamond account |
$661 |
-22% |
($1,646) |
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Hong Kong
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1H $Mil. |
%Chng. |
| Polished imports |
$9,713 |
9% |
| Polished exports |
$6,768 |
17% |
| Net imports |
$2,945 |
-2% |
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| Rough imports |
$1,147 |
20% |
| Rough exports |
$1,212 |
-13% |
| Net imports |
$64 |
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ECONWATCH
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Diamond Industry Stock Report
U.S., Far East and European shares were mixed, but no shocks. Chow Tai Fook (-6%) marked the greatest decline, Charles & Colvard (+5%) was top gainer. Indian shares all lower except Ren. Jewellery (+1%), Titan (+1%) and Winsome (+12%). Little change for miners except for Peregrine (-18%), Gem Diamonds (-8%) and Kennady (+5%). View the extended stock report.
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Sept. 18 |
Sept. 11 |
Chng. |
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| $1 = Euro |
0.774 |
0.774 |
0.000 |
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| $1 = Rupee |
60.77 |
60.91 |
-0.1 |
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| $1 = Israel Shekel |
3.64 |
3.63 |
0.01 |
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| $1 = Rand |
11.09 |
10.98 |
0.11 |
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| $1 = Canadian Dollar |
1.09 |
1.10 |
-0.01 |
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| Precious Metals |
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| Gold |
$1,225.50 |
$1,241.30 |
-$15.80 |
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| Platinum |
$1,342.00 |
$1,366.00 |
-$24.00 |
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| Stock Indexes |
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Chng. |
| BSE |
27,112.21 |
26,995.87 |
116.34 |
0.4% |
| Dow Jones |
17,265.99 |
17,049.00 |
216.99 |
1.3% |
| FTSE |
6,819.29 |
6,799.62 |
19.67 |
0.3% |
| Hang Seng |
24,168.72 |
24,662.64 |
-493.92 |
-2.0% |
| S&P 500 |
2,011.35 |
1,997.45 |
13.90 |
0.7% |
| Yahoo! Jewelry |
1,163.33 |
1,171.12 |
-7.79 |
-0.7% |
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INDIA MARKET REPORT
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Polished and Rough Trading Activity
Transactions at the Hong Kong show were minimal because buyers were cautious and asked for high discounts. Some interest was observed for size goods but smaller goods remained untouched. Notably, some exhibitors canceled at the last minute and / or scaled back show staff. Read the full report.
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