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Rapaport TradeWire April 17, 2015
Apr 16, 2015 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
April 17, 2015
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Polished markets weak with very low trading volume. Polished prices relatively stable following recent corrections but dealers uncertain about the future. Miners keeping rough prices high but selling less goods. ALROSA rough prices +2% to+3% at April sale, but reportedly allows deferrals up to 40%. Dominion 4Q rough sales +3% to $241M. Belgium March polished exports -7% to $1.2B, rough imports +5% to $1.4B. Rapaport Melee Index -4% in 1Q 2015. Sotheby’s HK sells $37M (67% sold by lot). LVMH 1Q watch and jewelry revenue +19% to $765M. U.S. February specialty jewelry store sales -5% to $2.7B. Diamond community mourns the loss of Antwerp Diamond Bourse executive director Yves Diamant.
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RapNet Data: Apr. 16
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| Diamonds |
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1,352,299 |
| Value |
$8,196,976,162 |
| Carats |
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1,273,731 |
| Average Discount |
-23.45% |
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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RAPAPORT ANNOUNCEMENTS
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Rapaport Presentation on Ethics
Martin Rapaport will present "Ethical Challenges and Opportunities in the Diamond and Jewelry Industry" during the American Gem Society Conclave on April 22 at 3:45 p.m. at the New Orleans Marriott Hotel.
Visit the conference website.
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QUOTE OF THE WEEK
Natural pearls achieved very strong prices in New York, where a world record $5 million was realized for a four-strand natural colored pearl necklace. There was spirited bidding for colored pink and blue diamonds along with all of the JAR creations offered in the auction.
Rahul Kadakia | Christie's
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INDUSTRY
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Rap Melee Index -4%
The Rapaport Melee Index (RMI™) for small diamonds decreased by 4% to 124.50 during the first quarter of 2015, while the index is down 9.5% year on year.
Polished prices declined as retailers were largely absent from the market and diamond trading remained slow. Jewelry retailers refrained from their usual first-quarter buying and avoided unnecessary buildup of inventory. Diamond manufacturers significantly reduced their polished production in an effort to diminish their existing inventory. Liquidity continued to be tight due to weak demand, manufacturers’ lack of profitability and the increased self-financing of rough purchases as banks restrict and reduce credit limits.
While the second quarter is a traditionally slow period, dealers are hoping that the market will stabilize as supply is reduced and shortages stimulate market demand in the coming months.
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U.S. Consumers Curb Spending
U.S. specialty jewelry store sales fell 5.4% year on year to $2.72 billion in February, according to government calculations. The sales decline was much more severe than preliminary totals for jewelry and watch sales across all channels, which fell only 0.2% in February to $6.188 billion. Total jewelry and watch sales are subject to several revisions in the months ahead.
During the first two months of 2015, specialty jewelry store sales have fallen 5.8% year on year to $4.673 billion.
Meanwhile, advanced estimates for U.S. retail sales in March -- excluding motor vehicles and parts -- were also disappointing, rising just 0.5% year on year to $346.7 billion. Retail trade sales were even dramatically subdued, rising 0.5%. Department store sales in March, continuing what has become a two-year long stretch of slow and steady declines, fell 2% to $12.95 billion.
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RETAIL & WHOLESALE
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LVMH's Revenue +16%
LVMH reported that a weaker euro helped to push the sales total of watch and jewelry up 19% year on year to $765 million (EUR 723 million) in the first quarter that ended on March 31. On a constant exchange-rate basis, which LVMH defines as "organic" growth, the increase was 7%. Overall, LVMH recorded group revenue of $8.8 billion, which was up 16% on a reported basis, but when the impact of the weaker euro was removed, organic growth was 3%. The euro has fallen approximately 23% against the dollar in the past 12 months.
The watch and jewelry division experienced strong momentum during the quarter, with the success of Bulgari's new Lvcea watch for women, according to LVMH. Hublot experienced a strong start to the year, while TAG Heuer refocused on its core offering. LVMH introduced several innovations at the Basel show and announced a partnership between TAG Heuer, Google and Intel to launch a smartwatch later this year.
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Michael Hill's Sales +4%
Michael Hill International reported that revenue rose 3.5% year on year to $290 million (AUD 382.3 million) in the first three quarters of its financial year that ended on March 31. On a same-store basis, however, sales rose just 0.9% to $272 million.
In Australia, Michael Hill's largest market, revenue fell 1% to $174 million, while comparable-store sales declined 2.1%. Revenue in New Zealand rose 4.3% in local currency to $66 million and same-store sales improved 4.8%. Sales in local currency for the company's stores across Canada jumped 15.5% to $48 million, but comparable-store sales rose only 2.9%. In the U.S., the retailer's smallest market, revenue increased 14.2% to $8.2 million and same-store sales rose 7.2%.
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Pearl Necklace Sets Record Price
Christie’s New York sale of magnificent jewels tallied up $41,951,125 against a $40 million presale estimate and was 77% sold by lot.
The top lot, a 5.29-carat fancy intense purplish pink diamond, which after a round of moderately competitive bidding, sold for $5,765,000 or $1,090,000 per carat to a dealer on the phone. Natural pearls were the stars of the day with a few of these rarities on offer, all of which sold for very strong prices, including a four-strand natural colored pearl necklace. An Asian private paid a hefty $5,093,000 for the treasure, setting a world auction record price for a natural colored pearl necklace.
White diamonds sold steadily, but yellow diamonds were having a bad day as most on offer were left on the block. Overall it was a satisfying sale with solid results for collectible and rare items.
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Equity Firm Buys Spence Diamonds
Private equity firm Lion Capital LLC agreed to buy retailer Spence Diamonds Ltd. of Canada for an undisclosed sum, according to the equity fund's statement. Lion Capital partnered with IVEST Consumer Partners, a Vancouver-based retail investor and operator, which will bring "seasoned operating executives" George Jones and Jim Schneider to lead the jeweler. IVEST vowed to buy a minority investment in Spence Diamonds, as will the jeweler's current CEO, Sean Jones, who will also remain on the board. Insiders allegedly told Fortune Magazine that the deal was valued at $125 million.
The investors expect to extend the geographic reach of Spence Diamonds, according to Eric Lindberg, a partner of Lion Capital.
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Rapaport: Create 'Ethical Added Value'
Martin Rapaport, the chairman of the Rapaport Group, will present a one-hour talk titled “Ethical Challenges and Opportunities in the Diamond and Jewelry Industry” at the annual American Gem Society Conclave in New Orleans. The presentation will take place on Wednesday, April 22 at 3:45 p.m. at the New Orleans Marriot Hotel.
Jewelers that ensure legitimate sourcing while honestly representing the quality of what they sell, create “ethical added value” that should be communicated to customers and incorporated into their brand.
“The jewelry trade has the opportunity and obligation to improve the lives of millions of people by ensuring the legitimacy of the products we buy. The emotional investment and social value that consumers attribute to jewelry are highly dependent upon the ethical integrity of the product. Our industry must support ethical trading policies and procedures that ensure the long-term position of jewelry as the ultimate emotional gift,” said Rapaport.
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Eco-Friendly & Local Resonate With Consumers
The third annual Conscious Consumer Spending Index, which measures U.S. consumer appetite for corporate social responsibility, found that 32% of shoppers intend to spend more with socially responsible companies this year. The percentage is up from 30% in 2014 and 29% in 2013, according to Good.Must.Grow., which compiles the index.
Top terms that resonate with consumers included organic, green and eco-friendly (each measuring 82%), local (79%), natural (74%) and sustainable (71%). But Good.Must.Grow. found that "local" becomes the most likely to influence a consumer's purchasing decision.
Additionally, 64% of U.S. consumers believed it was important to purchase products or services from a socially responsible company and that was up four percentage points from 2013. Still, Good.Must.Grow. concluded the data revealed that of those who planned to increase their spending at socially responsible firms in 2014, only 73% followed through, whereas 76% had followed through in 2013.
One reason, the group observed, is that knowledge gaps derail consumers who strive to meet their goal because 46% of shoppers admitted not knowing where to find socially responsible products and services.
The company compiled responses to the question, “Name one company or organization that is socially responsible.” Of the 20 top retailers, only three that sell jewelry made the list: Walmart ranked at number eight, Target at number 10 and Costco was number 11. But 28% of consumers failed to name even one socially responsible company, the study noted.
Consumers weighed how a company treats its employees, impacts the environment and offers transparency in determining whether it is socially responsible.
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Court Remands Pricing Case of 21ct. Stone
Antique dealer Thomas DePrince sued Starboard Cruise Services for breach of contract, specific performance and conversion after he had purchased a 20.64-carat, D, VVS2 emerald-cut loose diamond for $235,000 from a jewelry shop on a Holland American ship. However, the cruise line, citing a pricing mistake from its wholesaler, refunded his payment and never delivered the stone. A lower circuit court sided with Starboard's defense that the actual price was $4.85 million ($235,000 per carat) and that the error met the guidelines of "unconscionability" under the "unilateral mistake" defense. DePrince appealed.
The 3rd District Court of Appeal in Miami decided that the lower court erroneously tossed the case. The judges ruled that Starboard had not demonstrated "unconscionability" nor was it entitled to judgment and found it "inexplicable" why the wholesaler, Sophia Fiori, was not a party since the sales contract didn't specify "$235,000 per carat." The case will return to the lower court for another round.
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Cowie Collection Debuts at Blue Nile
Blue Nile teamed-up with wedding designer Colin Cowie to create an exclusive collection of engagement rings and fine jewelry that will be available in early May. In addition, Cowie will become a spokesperson for Blue Nile. The new collection will feature a bridal line of solitaire, halo and three-stone style engagement rings with matching bands, as well as a fine jewelry line of stud and drop earrings, pendants, necklaces and bracelets under three brand names: Eternal, Promise, Romance.
The Eternal pieces feature infinity circles to represent "love forever" and price points range from $395 to $5,400. The Promise collection builds upon Cowie's signature interlocking "C" design and carries a price range of between $400 and $6,150. Lastly, Romance highlights passion with bright and bold designs and prices ranging from $1,080 to $7,800. Separately, men’s pieces mix metals, diamond accents and the infinity motif and are offered in a price range of $1,380 to $2,720.
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Former Jeweler Heads to Prison
U.S. District Judge Karon O. Bowdre sentenced former jeweler Joseph Harold Gandy to three years and nine months in prison and to pay $20,000 in restitution to jewelers and forfeit $1.5 million in diamonds and jewelry to the government, in accordance with a binding plea agreement.
In October, Gandy, 65, was charged with one count of money laundering for pawning property worth more than $10,000 that he obtained through wire fraud, which he committed when he submitted an insurance claim on diamonds falsely reported as stolen. Separately, Gandy also faces weapons and drug charges.
Gandy operated the Denman-Crosby Jewelry Store in Mountain Brook, Alabama, where he claimed two men robbed him at gunpoint in December 2004, for which he filed an insurance claim of approximately $2.8 million. He received a payout of $2.6 million. However, between July and November 2013, prosecutors found that Gandy enlisted a friend to market the reported stolen goods to area jewelry and pawn shops.
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Tiffany's Watch Ads Debut
Outdoor advertising agency JCDecaux S.A. unveiled the latest Tiffany & Co. campaign for men's watches at the Los Angeles International Airport (LAX) Tom Bradley International Terminal and it will be the exclusive digital outdoor media partner for the new timepiece collection.
The media incorporates a Digital Clock Tower that provides Tiffany & Co. a four-sided digital display platform and it stands 72-feet tall in the great hall, reaching all departing travelers. The Tom Bradley terminal is home for about 30 airlines and accommodates more than 9.8 million passengers traveling to and from Europe and the Asia-Pacific region each year.
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NRF Establishes Research Center
The National Retail Federation (NRF), the largest U.S. organization that represents retailers, invested several million dollars in creating a Retail Research and Analysis Center, which will serve as a hub for economic and consumer spending data and trends, and legislative and regulatory policies that affect the industry. The new division will bring together all existing research within NRF and intends to expand the range of issues in support of retailers.
Ellen Davis will serve as NRF’s senior vice president of research and strategic initiatives, overseeing the new center, but will also continue to function as executive director of the NRF Foundation.
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GENERAL
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Yves Diamant Passes Away
The Antwerp community is mourning the passing of Yves Diamant, one of two executive directors of the Beurs Voor Diamanthandel, or the Antwerp Diamond Bourse.
In addition to serving on the board, Diamant founded his own company, Yves Diamant BVBA, more than 35 years ago, which developed the “www.yellow-list.com” in an effort to assist its clients rapidly complete inquiries and orders.
Diamant was a fully qualified gemologist who was elected to the bourse's board more than 14 years ago and he had stated that the opportunity offered a much wider view into the diamond industry.
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Severalmaz Appoints New CEO
ALROSA's chief engineer, Andrey Pismenny, was appointed to the position of CEO of Severalmaz, which operates in the Arkhangelsk region. Pismenny signed a contract for a period of five years.
With the current processing capacity, Severalmaz began mining at the Karpinskogo-1 pipe in addition to its existing Arkhangelskaya pipe. Severalmaz anticipates increasing diamond production to 2 million carats this year and then to more than 5 million carats from 2016 forward.
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ICA Appoints Blommaert
The International Colored Gemstone Association (ICA) appointed Dirk Blommaert to the position of member services manager in a consulting capacity. Blommaert's role is designed to help better communicate ICA's services and resources to members and the larger precious colored gemstone industry.
Blommaert will oversee the group's trade show pavilions, marketing and sales, the ICA International Congress, tours to gem localities, advertising and marketing; and he will act as an industry liaison, create networking opportunities and coordinate member services.
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Scott Kay Appoints Sales Executives
Scott Kay appointed Bruce Lake and Cathy Marsh as regional account executives to the brand's newly formed regional sales team. Lake was most recently a sales director for Forevermark and has also managed specialty and full service jewelry stores in the past. Marsh rejoins Scott Kay after stints at Tacori, David Yurman and most recently TAG Heuer.
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NBF Courts Gulf Diamond Trade
National Bank of Fujairah (NBF) stated that it has hired former industry specialists from Antwerp Diamond Bank, which closed it office in Dubai, to operate a new division that focuses on the diamond industry. Initially, the bank vowed to provide short-term purchase and sales financing to established diamond businesses. The bank already has reputable relationships with jewelers and gold dealers, and developing the Gulf's diamond trade was the next logical step, according to Vikram Pradhan, NBF's head of corporate and institutional banking.
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IndusInd Absorbs ABN Amro Clients
ABN Amro will transfer its diamond and jewelry activities in India to IndusInd Bank Limited once regulators approve the move. The business was being conducted under a deal with Royal Bank of Scotland in India. ABN AMRO and IndusInd Bank also agreed to enter into a partner banking agreement to continue cooperation with the diamond and jewelry sector.
Erik Jens, the CEO of diamond and jewelry clients at ABN Amro, said, "IndusInd Bank Limited is a strong and stable partner for our Indian clients. We are, therefore, pleased with today’s announcement. ABN Amro remains committed to its activities in the diamond and jewelry business and to working with IndusInd Bank on the partner bank agreement."
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MINING
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Dominion's Sales +3% to $241M
Dominion Diamond Corporation reported that its sales rose 3.2% year on year to $240.6 million in the fourth quarter that ended on January 31. Cost of sales dropped 10.9% to $179.8 million, driving up gross margin as a percentage of sales to 25.3% compared with 13.4% one year earlier. Profit rose to $3.7 million compared with a loss of $12.3 million; however, the loss attributable to shareholders was narrowed to $546,000, or 1 cent per share, compared with $7.8 million, or 9 cents per share, one year ago. Dominion attributed the consolidated loss to the foreign exchange-rate income tax impact of $29.1 million or 34 cents per share.
For the fiscal year, sales climbed 21.8% to $915.8 million, while cost of sales rose 5.3% to $685.7 million. Gross margin as a percentage of sales improved to 25.1% compared with 13.4% in the previous fiscal year. Profit totaled $72.3 million, down from $471.2 million in the previous year, which included the sale of Harry Winston. Profit attributable to shareholders, however, rose to $66.2 million, or 78 cents per share, compared with a loss of $23 million, or 27 cents per share one year earlier.
Diavik's revenue was basically flat during the year at $351.6 million from the sale of 3.014 million carats at an average price of $117 per carat. Ekati's revenue jumped 41.2% to $564.2 million from the sale of 2.166 million carats at approximately $260 per carat.
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Petra's Sales -41% to $96M
Petra Diamonds reported that revenue fell 41% year on year to $96.1 million in the third quarter that ended on March 31. The company sold 826,815 carats during the period, representing a 9% decline. Production rose 6% to 791,443 carats. The mining company lowered guidance slightly and now expects to produce 3.2 million carats in the fiscal year, down from an original estimate of 3.3 million carats.
During the quarter, the company's beneficiation partner completed cutting and polishing a 122-carat blue diamond, which yielded a 26.10-carat radiant-cut, intense fancy blue; an 11.30-carat pear-shape; a 10.30-carat radiant-cut fancy blue and a 7.00-carat cushion-cut fancy blue stone. Petra will retain a 15 percent share of the sales price of these stones once it is determined the best route to market.
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Gemfields Production Rises
Gemfields reported that production of emerald and beryl from the Kagem mine in Zambia jumped 175% year on year to 9.9 million carats in the third quarter that ended on March 31. An auction of predominately lower-quality rough emeralds generated revenue of $14.5 million in February. In addition, the company generated approximately $450,000 from the sale of high-quality Kariba amethysts.
Ruby production from the company's Montepuez operation in Mozambique rose 27.2% to 1.4 million carats. Gemfields didn't conduct a ruby auction during the quarter but plans to hold a sale of lower-quality rough ruby and corundum in April.
The company estimated that Fabergé's value of sales, whether or not payment had been received on March 31, rose 64% and that operating costs were flat.
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NGOs Urge Zim to Rethink Marange
The Centre for Natural Resource Governance (CNRG) and Chiadzwa Community Development Trust (CCDT) requested that all diamond mining cease in the Marange fields, pending a full independent inquiry into mining activities ahead of a planned consolidation. The groups argued that Zimbabwe loses nothing by keeping diamonds underground while it works to end pervasive secrecy, looting and smuggling.
The groups said the government should reach out to global experts to plan how best to ensure Marange diamonds are properly accounted for, produced and sold in a professional and transparent manner. In addition, there must be a geological survey conducted of the entire Marange and Chimanimani region to identify potential resource areas.
Finally, the NGOs advised the government to confirm with the Kimberley Process Certification Scheme that consolidating diamond mines will not affect compliance.
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ECONWATCH
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Diamond Industry Stock Report
U.S. retail all lower except for Birks (+3%), Blue Nile (+1%) and Charles & Colvard (+8%). Far East mixed, but Sarine (-25%) was lower in heavy trading. European shares higher except for Damiani (-5%), while India was little changed save C.Mahendra (+9%), Goenka (+8%) and Goldiam (-4%). Big swings for some miners: Kennady (+17%), Peregrine (+52%), Gemfields (+23%) and Petra (-10%). View the detailed industry stock report.
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Apr. 16 |
Apr. 8 |
Chng. |
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| $1 = Euro |
0.928 |
0.927 |
0.001 |
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| $1 = Rupee |
62.30 |
62.20 |
0.1 |
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| $1 = Israel Shekel |
3.93 |
3.93 |
0.00 |
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| $1 = Rand |
11.97 |
11.82 |
0.15 |
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| $1 = Canadian Dollar |
1.22 |
1.25 |
-0.03 |
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| Precious Metals |
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| Gold |
$1,198.90 |
$1,202.30 |
-$3.40 |
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| Platinum |
$1,159.00 |
$1,165.00 |
-$6.00 |
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| Stock Indexes |
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Chng. |
| BSE |
28,666.04 |
28,707.75 |
-41.71 |
-0.1% |
| Dow Jones |
18,105.77 |
17,902.51 |
203.26 |
1.1% |
| FTSE |
7,060.45 |
6,937.41 |
123.04 |
1.8% |
| Hang Seng |
27,739.71 |
26,236.86 |
1,502.85 |
5.7% |
| S&P 500 |
2,104.99 |
2,081.90 |
23.09 |
1.1% |
| Yahoo! Jewelry |
1,375.00 |
1,364.34 |
10.66 |
0.8% |
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INDIA MARKET REPORT
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