RAPAPORT... Market sentiment improved in March as trading at the Basel
show continued the positive momentum set in Hong Kong the previous month.
That’s not to say that the diamond trade is booming. Of course, caution will
dictate market conditions as long as the global economy remains restless.
But, stability has set in and confidence in the diamond
trade has improved from the lulls of the second half of 2011, driven by steady
demand in the Far East and the U.S. In the Far East, retailers and wholesalers
have depleted the inventories they built up through speculative buying in the
first half of 2011 and they are starting to buy again for inventory — this time
without the speculation. While they are pushing their price points, they are
also careful not to allow prices to drop significantly because they are afraid
that this might impact consumer confidence. Diamond suppliers, in turn, are
holding their prices firm.
Prices were therefore largely stable in March, with the
RapNet Diamond Index (RAPI) for 1-carat stones rising .3 percent during the
period March 1 to March 26. The RAPI for .30-carat diamonds rose 1.5 percent,
and the RAPI for .50-carat stones fell .5 percent. The RAPI for 3-carat
diamonds fell by a slight .2 percent during the period (see chart on opposite
page, top).
For the first quarter of 2012, prices for 1-carat diamonds
fell 3.6 percent, with the sharpest declines taking place from mid-January
until late February, when stability set in. As a result, the industry managed
to get through the quarter relatively unscathed and many predict continued
stability in the second quarter before the market picks up again toward the
latter half of the year — barring any major negative economic event that would
direct the market otherwise.
TRADING CENTERS
While demand has been driven by improvements in the consumer
centers, trading in the cutting centers remained uncertain for varying reasons.
In Israel, confidence was boosted by the one-month suspension of the
investigations into alleged tax evasion taking place in the bourse, but dealers
were still in the dark regarding what would evolve after the month concluded,
which was approaching at press time.
Israel’s trade of diamonds slumped in the first two months
of the year, largely as a result of the investigations. Polished exports fell
47 percent year on year to $705.7 million, while rough exports dropped 44
percent to $429.3 million. Total diamond imports were down 24 percent to $1.14
billion through January and February.
More significantly, India’s domestic trade has been impacted
by a combination of exchange rate volatility and the new 2 percent import duty
on polished diamonds introduced in mid-January. As a result, India’s polished
diamond imports plummeted by 80 percent to $476 million in February, while its
polished exports fell 54 percent to $1.44 billion (see chart at right,
bottom).
Proposals in India’s state budget for 2012 to further
increase the import duty on gold, and to introduce an excise duty on unbranded
jewelry, sparked protests in the industry, with jewelry retailers declaring a
strike in mid-March, which remained unresolved at press time (see India Market
Report on page 64).
ROUGH SUPPLY
Demand in India has been driven by the export market, with
buyers from the Far East, Israel and the U.S. actively shopping for goods in
Mumbai. Manufacturing in Surat has been maintained with a steady supply of
rough, particularly the new supply from Zimbabwe’s Marange mines. While some
have expressed concerns that the Zimbabwe goods, which remain sanctioned in the
U.S. and the European Union (EU), will cause an oversupply of rough in the
market, most agree that they will only impact the lower end of the market.
Rough premiums improved toward the end of the month in
advance of the March Diamond Trading Company (DTC) sight, which was ongoing at
press time. De Beers curbed its supply during the first quarter, taking
advantage of the period of market caution to carry out maintenance at some of
its mines.
Jim Gowans, chief executive officer (CEO) of Debswana, which
had production of 22.89 million carats in 2011, accounting for about 73 percent
of De Beers total output, told Rapaport Magazine that the company is tailoring
to the market. “The market is very sensitive at the moment so if we ramped up
to 25 million carats, I believe that would have a detrimental impact on the
market,” he said. “It would mean an oversupply, which would result in prices
softening.” Gowans said Debswana is aiming for production of about 24 million
carats in 2012 and positioning itself to ramp up its operations only toward the
end of the year, “when the market is expected to be more robust.”
DTC’s first two sights of this year therefore fell below
2011 levels (see chart at left), with estimated sales in January and February
down 14 percent to $1.25 billion. Conversely, ALROSA reported that its diamond
sales rose 21 percent to $694 million in the first two months of the year.
Clifford Elphick, CEO of Gem Diamonds, reported that the
company has witnessed a continued moderate strengthening of rough prices at
sales conducted so far in 2012 at its Letšeng and Ellendale mines. He reasoned
that reports received about the November to December 2011 retail season in the
U.S. indicated that there was growth in demand for diamond jewelry that led to
ad hoc restocking in the manufacturing centers at the beginning of 2012.
THE RETURN OF RETAIL?
Financial reports published by three of the major jewelry
retail companies for the three months that ended January 31, 2012, indicated
mixed results for the season (see chart at right). Tiffany & Co. missed
expectations, with sales growth of 8 percent to $1.2 billion, while Signet
Jewelers saw its sales grow 7 percent to $1.35 billion. Zale Corporation
reported sales rose 6 percent to $663.8 million. Growth was largely in line
with inflation as the U.S. consumer price index (CPI) for jewelry was up 8.2
percent year on year to a record 185 points in January before settling back to
182 points in February.
Still, many were encouraged by signs that the U.S. consumer
environment is slowly improving, with Commerce Department data showing that
retail sales rose 1.1 percent in February. The Federal Reserve noted that the
economy has been expanding moderately and that labor conditions have improved,
but cautioned that unemployment, at 8.5 percent in January, remains elevated.
Federal Reserve Chairman Ben Bernanke added that further significant
improvements in the unemployment rate will likely require a more rapid
expansion of production and demand from consumers and businesses.
While diamond traders were encouraged by the U.S. sentiment,
they continued to express greater concern for the effect that the European
crisis would have on the market. With the first quarter complete, the diamond
market is expecting the second to present much of the same stable-but-cautious
trading prospects — while hoping to avoid any dramatic events — helping the
mood among traders to slowly improve month by month.
Article from the Rapaport Magazine - April 2012. To subscribe click here.