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Rapaport TradeWire November 26, 2015
Nov 26, 2015 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
November 26, 2015
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Rapaport calls for resignation of De Beers CEO and 30-50% rough price cut to inject liquidity and profits into diamond trade. De Beers stops buying and paying Botswana for rough, 2H15 De Beers rough sales expected to plummet at least 60%, possibly 70% Y/Y. (See Rough Bubble Bust article.) U.S. retail
okay as holiday season starts. Dealers hope for last-minute orders but
concerned as jewelers inventories are high. ALROSA
3Q sales -4% to $619M, loss -47% to $231M, inventory ~20M cts. worth ~$2B
($100/ct.). Signet 3Q sales +3% to $1.2B, profit of $15M vs. loss of
$1.3M. Tiffany 3Q sales -2% to $938M, profit +137% to $91M. Chow Tai Fook 1H
sales -4% to $3.6B, profit -43% to $201M.
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| Diamonds |
1,142,169 |
| Value |
$8,071,704,603 |
| Carats |
1,267,908 |
| Average Discount |
-28.60% |
www.rapnet.com
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| The RapNet Diamond Index (RAPI) is the average price for the top 25 diamond qualities (D-H, IF-VS2). It is based on the 10 best priced diamonds for each quality. |
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Without a viable, profitable and sustainable diamond trade distributing their diamonds, De Beers diamond mines are worthless.
Martin Rapaport, chairman of the Rapaport Group, on De Beers refusal to lower rough diamond prices
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MARKETS
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United States: New York trading quiet as many businesses close early for long
Thanksgiving weekend. Demand weaker than usual before holiday...
Belgium: Sentiment
much better than few weeks ago with holiday demand and shortages supporting the
market. Very few fresh goods on the market...
Hong Kong: Polished
trading stable but cautious with some early Chinese New Year demand. Good
demand for dossiers...
India: Trading
slowly returning to normal after Diwali with manufacturers expected to return
next week. SI-I2 demand strong for U.S. market...
Israel: Gradual
improvement continues with dealers focused on filling U.S. holiday demand. Some
orders difficult to fill due to shortages...
Click here to continue reading
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INSIGHTS
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How Botswana Will Find Independence
Fifty years
on from independence, Botswana still finds itself in desperate need of
improvements in its economic diversity. Its unsustainable reliance on diamonds is
the reason why...
Click here to continue reading
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INDUSTRY
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Rapaport Calls for Resignation of De Beers CEO
In an article published this week (“Rough Bubble Bust”), Martin Rapaport details how and why rough diamond
prices have been manipulated to artificially high unsustainable levels and the
negative impact this is having on the profitability, liquidity and viability of
the diamond trade. The fact that rough prices are significantly higher than
resultant polished prices is reducing De Beers sales and profits. De Beers
suspension of purchases and payments for Botswana diamonds is also having a negative
impact on the country.
“The rough diamond distribution system is
collapsing as De Beers and other mining companies attempt to force
unsustainable artificially high rough diamond prices on the diamond trade.
Rough prices are higher than polished prices, which have come down to realistic
levels due to the downturn in the global economy. The mining company’s refusal
to lower rough prices is destroying the diamond trade, creating severe
financial losses, illiquidity, supply shortages, and the loss of tens of
thousands of jobs. De Beers must immediately inject liquidity into the diamond
trade by reducing rough diamond prices 30-50%. There is no justification for
rough prices higher than polished diamond prices. Without a viable, profitable
and sustainable diamond trade distributing their diamonds, De Beers diamond
mines are worthless,” said Martin Rapaport, Chairman of the Rapaport Group.
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De Beers Shareholders to Meet on Diamond Prices
De Beers shareholders were scheduled to meet November 26 to discuss diamond prices, Botswana Minerals, Energy and Water
Resources Minister Kitso Mokaila said.
Speaking November 23 at a conference in
Gaborone, the minister said “diamond prices have been coming down and something
more sustainable needs to be done. The shareholders need to get their heads
together.” Anglo American PLC owns 85 percent of De Beers and the government of
Botswana owns the rest.
The conference, exploring the role of Botswana’s
diamond industry in the socio-economic development of the country since
independence, was hosted jointly by De Beers and the ministry November 23 and
24.
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Diamonds in Hacking Case Still Unreturned
Only 175 of the 1,042 diamonds
whose Gemological Institute of America (GIA) reports were invalidated last
month following a hacking incident have been returned for examination, the
organization said.
“It is imperative that all of the diamonds and
their reports be returned to GIA for examination to remove the fraudulently
altered reports from the market,” the GIA said in a statement November 25.
The GIA nullified the certificates after the
gems’ color and clarity reports were changed by hackers. The group requested on
October 23 that anyone in possession of any of the stones or reports return
them immediately for a free examination.
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DPA Hires Creative Agency
The Diamond Producers
Association (DPA) has hired creative agency Mother New York to help kick-start the
appeal of diamonds to young people.
The move comes after the
consortium of miners, including ALROSA, De Beers and Rio Tinto, appointed Sally
Morrison as managing director of marketing in October. She has responsibility
for all of the organization's marketing activities, including the appointment
of an agency partner.
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Israeli Diamond Industry Offers 50% Cyber-Monday Cuts
The Israeli Diamond Industry
is offering discounts of up to 50% for Cyber Monday, the annual
post-Thanksgiving online sales bonanza.
Jewels are being sold from a dedicated
promotions website, which will run until December 4, the trade group said in a
statement November 23. List prices of items of offer range from $700 to
$450,000 and reductions start at 6%.
Categories of jewels in the promotion include
polished white and natural fancy color stones, engagement rings, pendants,
earrings and bracelets, according to the statement.
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Silver Supply Will Drop in 2015: Reuters
Silver
supply will decrease 3 percent this year as production is predicted to grow at
its slowest pace in 13 years following weaker demand from the jewelry and
electronics industries, and China, according to a forecast from Thomson
Reuters. Bullion coin sales jumped to a new record.
Total supply is expected to slide to 1,014.4
million ounces (Moz), Erica Rannestad, senior analyst in the GFMS team at
Thomson Reuters, said at an event hosted by the Silver Institute. Output is
projected to record its narrowest advance since 2002, up 0.3 percent to 867.2
Moz.
Jewelry fabrication is expected to fall 2.5 percent
from a year earlier as the industry in China plummeted 25 percent.
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Namibian Factories Decimated in Downturn
Nine of Namibia’s 13 diamond-cutting and
polishing factories have shut down over the last few years because of a
downturn in the industry across the world, The Namibian cited the country’s minister
for mines and energy Obeth Kandjoze as saying.
The four remaining cutting centers now employ
700 workers compared with 2,000 at the peak, Kandjoze told an International Diamond
Conference in Windhoek, according to the November 24 report.
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WDC Seeks Amnesty’s Help to Resume CAR Trade
World Diamond Council’s
president Edward Asscher called on Amnesty International to return to the
Kimberley Process (KP) and help resume diamond trading with the Central African
Republic. The country has been suspended from the KP since 2013.
Asscher joined more than 300 delegates from
50-plus countries at the five-day KP plenary meeting at Luanda in Angola last
week, the industry body said in a statement November 24.His speech followed an Amnesty
report on diamond trafficking from the Republic that alleged gem sales
still funded violence in country. The report wasdescribed by the NGO’s legal adviser Lucy Graham as “a damning indictment of
the Kimberley Process.”
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RETAIL & WHOLESALE
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Signet Misses Expectations
Signet Jewelers reported that
third-quarter earnings were below expectations as sales were driven by
lower-margin Kay stores and lower prices at Zales.
Mark Light, Signet’s chief executive
officer, noted that earnings were affected by a modest margin impact due to a
shift in its sales mix from the higher-value Jared stores to Kay.
The company registered adjusted earnings of 33 cents per share for the
three months that ended October 31, compared to 21 cents a year ago. However,
that was below its guidance given in August of 36 to 40 cents per share.
Group sales rose 3.3% to $1.22 billion in the
third quarter year on year, with same-store sales up 3.3%. Net income rose to
$15 million from a loss of $1.3 million a year earlier.
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Tiffany���s Revenue -2%
Tiffany & Co said sales
declined 2% to $938.2 million in the third quarter that ended October 31, with
the strong U.S. dollar hampering reported revenue figures. In the nine months
to October, sales decreased 2% to $2.9 billion and profit narrowed 4% to $288
million.
On a constant-currency basis, sales rose 4%.
Comparable-store sales increased 1% due to growth in Japan and Asia Pacific but
the performance was offset by lower sales in the Americas, the U.S. jewelry
retailer said. Profit more than doubled to $91 million and net earnings per
diluted share grew at a similar rate to $0.70.
The company has revised its full-year net
earnings estimate for 2015 downward and now expects the figure to decrease by 5% to 10% from last year’s $4.20 per diluted share.
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Chow Tai Fook’s Profit -43%
Chow Tai Fook reported that
sales fell 4% to $3.6 billion (HKD 28.1 billion) in the six months that ended
September 30 due to weak consumer sentiment in Hong Kong and Macau and
declining numbers of tourists visiting Hong Kong from mainland China. Profit
plummeted 43% to $201.4 million, the Hong Kong jewelry retailer said.
Same-store sales in Hong Kong and Macau slumped
18%, while mainland China comparative sales were basically flat. Same-store
sales fell 9% overall, according to a statement November 24.
Revenue in Hong Kong, Macau and other markets
excluding mainland China fell 7% to $1.5 billion. Jewelery sales in mainland
China performed better, edged down 1% to $2 billion, while watch sales in that
market slid 12% to $115.5 million.
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Luk Fook’s Profit -43%, Revenue Slips
Luk Fook Holdings International Limited reported revenue
declined 7.7% to $898.6 million (HKD 5.4 billion) in the six months to September
30 as a result of the Chinese downturn and the weak Hong Kong tourism industry.
Profit for the first half slumped 43% to $59.8 million, according
to a company statement November 26. Overall revenue in Hong Kong – which makes
up 60% of group-wide sales – fell 6.3% to $542.5 million.
Gem-set jewelry sales fell 16% to $323.3 million, but gold
sales improved as a result of a sales rush when prices dropped in July and
August.
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Early Black Friday Data Not Good Indicator of Actual Sales
Early Black Friday figures claiming to signal how well the holiday period is progressing should be ignored as initial numbers fail to accurately predict the actual sales, according to FiveThirtyEight.com.
First round of news stories on Thursday evening or Friday are driven “almost entirely by anecdote” such as length of queues and isolated interviews, Ben Casselman, the chief economics writer at the data website, said in a note November 25. Updates on Sunday and Monday tend to contradict each other and are disproven by subsequent official statistics.
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Birks Group’s 1H Revenue -4%
Birks Group’s sales fell 4% to
$134 million year on year in the six months to September 26, mainly because of
unfavorable foreign exchange rates, the Canadian jewelry retailer said November
20.
Excluding a $10.2 million adjustment
attributable to translating Canadian sales into U.S. dollars, revenue increased
3% to $144.2 million. Comparable store sales grew 3%. Gross profit fell 7% to
$51.6 million. The Canadian dollar depreciated 4.9% against the U.S. currency
in the period, according to data compiled by Bloomberg.
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Sotheby’s to Auction $4.6M Diamond Necklace
Sotheby's will auction a platinum and diamond
necklace estimated to sell at between $3.6 million and $4.6 million in New York
on December 9. The bib-style piece set with 217 carats of diamonds in a
‘sunburst’ motif was created in 1939 by Van Cleef & Arpels for Queen Nazli
of Egypt, the auctioneer said.
Other lots include a platinum, Kashmir sapphire
and diamond ring valued at $3.5 million to $4.5 million that had been in the
possession of three generations of the family of financier Thomas Fortune Ryan,
and a platinum and diamond ring estimated at $3.5 million to $4.5 million set
with a square emerald-cut, 38.27-carat, D, VVS2, type-IIa diamond from the
estate of an Italian countess.
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Graff Ring Collection Inspired by Prohibition-Era Parties
Graff
Diamonds has introduced a ring design inspired by America’s flamboyance in the
1920s and the excitement of alcohol-laden secret parties of the prohibition era.
Rings in the new collection feature a dome
consisting of layers of diamonds in a swirl, with an elevated central stone as
the focal point. Women at the time wore “show-stopping” statement rings which
in subsequent years were billed ‘cocktail rings’ and have remained fashionable,
the U.K.-based jewelry retailer said in a statement.
Among the designs is a ring of “exceptionally
rare” pink pavé diamonds surrounding a 4.18-carat brilliant round precious
stone. Others incorporate white pavé diamonds featuring a 5.34-carat
radiant-cut fancy intense yellow stone, a 4.38-carat emerald-cut diamond or a
4.21-carat pear-shaped stone.
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MINING
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ALROSA Loss Widens 47%
ALROSA
reported revenue decreased 3.5% to $619.4 million (RUB 40.6 billion) in the
third quarter that ended September 30. The Russian miner’s loss increased 47%
to $231.2 million, driven partly by the depreciation of the ruble against the
U.S. dollar. The U.S. dollar strengthened 17% against the ruble between
December 31, 2014, and September 30, 2015, the statement said, citing official
exchange rates from the Central Bank of the Russian Federation.
The company’s diamond sales decreased 4.5% to
$524.7 million, with exports rising 4% to $454 million and domestic sales
falling 11% to $64 million. Diamond
inventory expanded 48% to $724.7 million.
The company “revised” its sales budget to reflect changes in the diamond
market and macroeconomic factors but kept this year’s production plan unchanged
at 38 million carats, it said after a supervisory meeting last week.
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Dominion Sales -53%
Dominion Diamond Corporation’s
revenue slumped 53% to $145 million year on year in the third quarter that
ended October 31. In volume terms, sales fell 31% to 795,000 carats and the
average price slid 25% to $145 per carat, the Toronto-based miner said.
Sales from the Ekati Diamond Mine in Canada
increased 5% to 480,000 carats, but a 41% drop in the average price to $184 per
carat resulted in sales dropping 38% to $88.2 million in value terms.
Revenue from the Diavik
Diamond Mine, also in Canada, dropped 29% to $56.8 million as the volume of
rough sales plummeted 55% to 315,000 carats. However, the average price
increased 56% to $180 per carat.
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Stellar Diamonds Cuts Loss 25%
Stellar Diamonds, a U.K.-based exploration group
focused on West Africa, cut its annual loss by 25% as revenue grew from naught
last year and costs were slashed.
Its loss fell to $3.1 million in the year to
June 30, according to a November 24 statement from the company, which is listed
on London’s Alternative Investment Market. Sales jumped to more than $614,228.
Administrative costs plummeted 48% to $1.4 million as corporate and
project-level expenses were reduced.
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Botswana Diamonds Cuts Loss 64%
Botswana
Diamonds trimmed its losses by 64% to $568,511 (GBP 372,502) in the full year
to June 30, the Irish miner reported in a statement November 19. The
exploration group has not made any sales to date. It mines for diamonds in the
Orapa and Gope areas of Botswana primarily through a 50-50 joint venture with
Russia’s ALROSA.
While in 2014 its loss was compounded by the
downward revaluation of assets to the tune of $939,931, the figure was zero
this year. As a result, the operating loss narrowed 68% to $512,122 as
administrative expenses for the year fell 23%.
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Peregrine Diamonds Announces Rights Issue
Peregrine Diamonds has
announced a $7 million rights issue to finance the remaining work on its
Chidliak mining project at Nunavut in Canada and exploration in Botswana.
The proceeds will be used to
further the remainder of the 2015-2016 Chidliak Diamond Resource Development
Program, and fund the 2016 Chidliak work program, according to a company
statement.
Funds raised would also go
toward extending exploration in Botswana and potentially for meeting working
capital requirements, the company added.
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GENERAL
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IDC Unveils New Website
The
International Diamond Council (IDC), a trade body that formulates globally
recognized standards for diamond grading and terminology, has launched a new
website to aid users’ understanding of the trade.
The site enables downloading the IDC’s rules on describing
precious stones in English, German, Russian, Arabic and Chinese, the council
said in a statement November 20.
The development comes after the International
Organization for Standardization (ISO) published a new consumer-orientated
guide to diamond vocabulary in July 2015.
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Kim Kardashian Demands Diamond Choker
Celebrity Kim Kardashian has
requested a Lorraine Schwartz diamond choker as a ‘push present’ – a
post-pregnancy gift – from husband Kanye West.
“Do you guys believe in a push present? I never
did, but all of my friends do! We have the funniest e-mail chains discussing
it,” she wrote on her official blog, before adding “this pregnancy, I would
love a Lorraine Schwartz diamond choker, like the ones I've worn before to the
Art + Film Gala.”
The blog presents other ‘push present’ jewelry gift ideas
ranging from $78 to $2,600.
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ECONWATCH
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Diamond Industry Stock Report
Mining stocks this past week were
led by a surge by Lucara Diamond Corp. (+28%) following its discovery of the
second largest diamond in history. Dominion Diamond Corporation fell 9% on
disappointing third-quarter results. North American retailers Birks Group
(+27%) and Tiffany (+9%) and Hong Kong’s Chow Tai Fook (+4%) rose despite
reporting mixed or disappointing earnings figures.
View the detailed industry stock report.
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Nov. 26 (10:30 GMT) |
Nov. 19 (10:30 GMT) |
Chng. |
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| $1 = Euro |
0.94 |
0.94 |
0.007 |
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| $1 = Rupee |
66.56 |
66.16 |
0.4 |
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| $1 = Israel Shekel |
3.88 |
3.89 |
-0.01 |
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| $1 = Rand |
14.24 |
14.13 |
0.11 |
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| $1 = Canadian Dollar |
1.33 |
1.33 |
0.00 |
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| Precious Metals |
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Chng. |
| Gold |
$1,071.08 |
$1,070.72 |
$0.36 |
0.0% |
| Platinum |
$850.50 |
$849.42 |
$1.08 |
0.1% |
| Silver |
$14.22 |
$14.18 |
$0.04 |
0.3% |
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| Stock Indexes |
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Chng. |
| BSE |
25,958.63 |
25,792.40 |
166.23 |
0.6% |
| Dow Jones |
17,813.39 |
17,737.16 |
76.23 |
0.4% |
| FTSE |
6,362.94 |
6,255.82 |
107.12 |
1.7% |
| Hang Seng |
22,488.94 |
22,888.92 |
-399.98 |
-1.7% |
| S&P 500 |
2,088.87 |
2,075.00 |
13.87 |
0.7% |
| Yahoo! Jewelry |
1,000.82 |
1,050.48 |
-49.66 |
-4.7% |
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INDIA MARKET REPORT
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Polished Trading Activity
Trading slowly returning to normal after Diwali with manufacturers
expected to return next week. SI-I2 demand strong for U.S. market with some improvement in VS
diamonds. Suppliers holding firm prices for confirmed orders but major
retailers pushing for significantly lower polished prices. Shortages supporting
prices of select goods. Rough demand very weak with limited manufacturing
expected through December. Local demand stable as jewelers anticipate moderate
wedding season. Good gold jewelry demand at lower prices.
Read the Polished Diamond Trading Report
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Rapaport
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