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By Avi Krawitz
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Posted: 12/24/09 15:00
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Editorial
Responsible Jewelers
Who would have thought the decade would conclude much the same way it started: with blood diamonds tainting the industry? While ten years ago, the diamond sector was praised for its decisive and unified action in creating the Kimberley Process Certification Scheme (KPCS) and its subsequent success in curbing the flow of conflict diamonds, the effectiveness of that very process has been compromised this year by the industry’s inaction regarding Zimbabwe.
This week, yet another opportunity to send a clear assurance to consumers that the diamonds they buy are clean, was passed up by the diamond and jewelry industry.
For all its good intentions, the Responsible Jewellery Council (RJC) launched its Certification System “to advance responsible ethical, social and environmental practices, which respect human rights, throughout the diamond and gold jewelry supply chain, from mine to retail.”
In striving to set the ethical standard for the industry, however, RJC’s launch should have been accompanied by a commitment — on behalf of its 140 members — not to deal in diamonds from the Marange fields in Zimbabwe. But it didn’t.
As a result, the industry remains silent about the ongoing human rights abuses occurring in the alluvial diamond fields.
The Marange issue gained prominence in the run-up to the KP plenary meeting in November, after a KP review team confirmed reports of government-sponsored killings and human rights abuses at Marange between October 2008 and February 2009 and deemed the country non-compliant with the scheme. On the basis of the review team’s report, civil society, represented by Global Witness and Partnership Africa Canada (PAC), and various Western governments, most notably the U.S., Canada and Australia, unsuccessfully bid to suspend Zimbabwe from the KP at the November meeting in Namibia.
Because decisions have to be made by consensus among KP members, few believed Zimbabwe would be suspended from the process and a 12-month work plan, which was drafted by South Africa, Zimbabwe and the industry, represented by the World Diamond Council (WDC), was adopted to bring the country into compliance. Given Zimbabwe’s presentations at the plenary and developments thereafter, though, few can honestly believe the country cares to adhere to this work plan.
In short, Zimbabwe held the plenary ransom as it refused to acknowledge any of the human rights abuses that have been apparent at Marange, while highlighting its recruitment of “foreign investors” to partner with the Zimbabwe Mining Development Corporation (ZMDC) in the fields and subsequent improved conditions there. It has become an open secret that government representatives plan to profit from the fields, as they work to further manipulate KP systems to sell Marange stock.
As Human Rights Watch (HRW) reiterated this week in a letter to prominent retailers, “Because of the prevalence of smuggling, the lack of transparency within Zimbabwe's diamond industry, insufficient controls at the country's borders with neighboring countries and weak certification mechanisms, there is no way to guarantee that Marange stones are not being mixed with those produced at Zimbabwe's other two mines.”
“Moreover,” HRW’s statement continued, “once the Marange diamonds leave Zimbabwe, they are intermingled with diamonds from other countries, creating a serious risk that Zimbabwean diamonds extracted in an abusive human rights environment may be sold in the U.S. and elsewhere.” The nongovernmental organization (NGO) reported ongoing abuses at Marange as late as October 2009.
These comments should shake the industry to the core. They should certainly provide a wake-up call to the chief executive officers (CEOs) of Tiffany, Bulgari, Cartier, Movado, Zale and Ultra Stores, to whom HRW addressed its letter. And they should raise the alarm that none of the ethical standards established for the industry today can ignore the ongoing human rights abuses in Zimbabwe’s Marange fields.
Such abuses led the Rapaport Group to implement a trading ban on all diamonds from Marange, requiring its RapNet trading members to commit not to deal in Marange stones. Others, such as Leber Jewelers and Diamondgeezer.com, have followed suit. De Beers, too, has warned its sightholders to be vigilant to ensure that goods they purchase do not contain any stones that might have come from Marange.
However, we have yet to hear a response from the retail CEOs, just as we have yet to see the WDC initiate a campaign to ensure the industry’s reputation remains clean, as it did in 2006. Back then, faced with increased consumer awareness about conflict diamonds surrounding the release of the movie “Blood Diamond,” the WDC aggressively sought to assure consumers that the diamonds they wish to buy are conflict-free.
They knew then, what they have forgotten now, namely, that a blood-stained diamond trade cannot withstand a consumer backlash.
But more than that, the industry needs a vehicle to reflect and enact its own social conscience and awareness. What does it say about us if we allow ourselves to profit from the murder of hundreds of people and the suffering of communities? How do we answer when we are asked what we did to counter these abuses?
Where KP failed and the WDC neglected its mandate, the RJC this week could have saved face for the diamond industry. It’s now up to individual miners, diamantaires and jewelers to act on their own.
To learn more about the Rapaport Group’s stand regarding Marange diamonds, visit: www.diamonds.net/zimbabwe
Between the Lines
Rough: Searching the Rolls Royce of Mines
Even as rough supply is expected to outpace demand at the beginning of 2010, the long-term outlook remains favorable for miners. Future production is a concern as the veteran mines are getting older and need to go underground. Just this week, ALROSA launched underground mining at Aikhal, which will produce up to 500,000 tons of ore a year and has a life span of 25 years. Other mines in the process of transitioning to underground operations include Rio Tinto’s Argyle and Diavik mines.
Two of the more promising new mines that are expected to come on-line in the next few years have been in the news this month.
Stornoway Diamond Corporation significantly raised its resource estimates for the Renard mine in Canada, assigning the project a mineral resource estimate of 23 million carats and a total inferred mineral resource estimate of 13.3 million carats. This injected some new confidence in the company as its share jumped 74 percent in the two weeks since the announcement.
Similarly, African Diamonds’ share is up 15 percent from just over a week ago, when it revealed plans to develop the AK6 mine at a third of the cost, now that it has brought Lucara on board instead of former partner De Beers. Under the new plan, AK6 is expected to start production in 2011 with an output of 400,000 carats, which will ramp up to 1 million carats a year at full capacity.
The words of African Diamonds chairman John Teeling were assuring when he said, "Our mine will not have the glitz and glamour of the De Beers proposal, but it will work. It will be a Toyota, not a Rolls Royce." However, given the long-term production outlook for the industry, who knows? perhaps we need a Rolls.
Manufacturing: India Moves Beyond Recession
India posted some strong diamond trade results in November, with significant increases in both its polished and rough markets compared with the same month of last year. While it is important to note that the industry was in the midst of the recession in November 2008, this year’s data reveals increases over 2007, as well. Based on the data, it appears that India is trading at strong pre-recession levels.
While net polished exports, which discounts for the import and export of the same goods, rose in 2008 and were slightly down compared to 2007, net rough imports soared compared with both years. Indian diamond cutters are clearly gearing up for a busier 2010.
Retail: Mixed Holiday Reviews
During the holiday shopping season, specifically from November 1 through December 12, jewelry sales increased about 1 percent from the same period of 2008, according to MasterCard’s SpendingPulse, a macroeconomic report that tracks U.S. retail sales. The jewelry category outperformed other luxury goods categories, for which combined sales fell approximately 4 percent. General retailers missed out on the last-minute Christmas rush this year as heavy snowstorms in the Northeast kept shoppers indoors. Sales on “Super Saturday” dropped 13 percent to $6.9 billion, according to ShopperTrack, with declines in all regions of the U.S. The cold weather boosted online sales, which broke the single-day record on December 15 with sales of $913 million, while online spending in the past week alone hit a record $4.8 billion.
Economic Interest:
• U.S. 3Q gross domestic product (GDP) growth revised down to 2.2 percent.
• U.S. November new home sales fall 11 percent from October to eight-month low.
• Lev Leviev’s Africa Israel reaches deal to cut debt on New York Times building by 60 percent to $267 million.
• Ford to sell Volvo unit to Chinese automaker Geely for $1.8 billion.
• Harvard Business Review names Apple’s Steve Jobs as the best-performing chief executive officer (CEO).
Global Markets
United States: Jewelry retailers reported a better-than-expected end to the pre-Christmas shopping season, as sales were slightly higher this past week compared to last week. Most noted that overall holiday sales improved from their comparable 2008 level, but were down from 2007. Engagement rings are still the top seller, with the bread-and-butter goods in round, 1.00- to 1.25-ct., F-H, VS2-SI2 and better makes selling well. Among fashion jewelry items, diamond stud earrings are in the strongest demand, while 1.00- to 2.00-ct. diamond pendants are also selling well.
Belgium: Antwerp has been very quiet, as the bourses closed for the two-week Christmas vacation period. The year ended with good demand for 0.90-ct. stones in D and G-J colors, as well as for 1.25-ct., 1.50-ct., 1.75-ct., 2.50-ct. and 3.50-ct., D, IF stones. Dealers and manufacturers are ending the year feeling very price-conscious and concerned about rising rough and weak polished demand. They are expecting some correction in the first quarter, whereby either rough prices soften or the polished market improves.
Israel: Trading is quiet as expected for the end of the year, as most of Ramat Gan’s main export markets, particularly the U.S., Hong Kong and Belgium, are in holiday mode. Manufacturers have mixed feelings about the market for 2010; they are confident it will be a better year, but are still concerned about the weak polished environment. Nevertheless, they are active in the rough market as they prepare for new orders from the Far East in time for the Chinese New Year and Valentine’s Day. There has been a slight improvement in the demand for larger stones above 3.00-cts., but demand is still focused on 0.90-ct., 1.00-ct. and 1.50-ct. stones, with a healthy demand for collection goods and D-F in high clarities.
India: The polished market further slowed as diamond cutters saw weak demand for polished and price inconsistencies as the reasons for the end-of-year lull. Trading activity is expected to improve in the coming week as Indian buyers from Antwerp return to Mumbai for the Christmas vacation. There is good demand for 1.00-ct. stones, with shortages in G-I colors. There is also strong demand for cheaper goods of 0.02-0.07-cts. Similarly, India’s rough market is quiet and appears to be waiting out the year to start up again. There has been some improvement in lower-quality clivage rough in the past week.
China: Trading continues to improve slightly each week, with wholesalers anticipating a busy month ahead as they prepare for the Chinese New Year wedding season. Demand at the wholesale level has been consistent with good demand for round, 0.30-1.10-cts., D-J, VVS-SI stones with GIA certs, preferably Ex cut. While Christmas is not officially a national holiday in China, the week preceding the calendar New Year has become a popular shopping period. Jewelry retailers are therefore optimistic that they will end the year on a high note and that the trend will continue into 2010.
Hong Kong: The market has been relatively quiet, with some movement in larger stones serving as the pre-Christmas exception. There is still unfulfilled demand and trading is expected to pick up again after the New Year. Chinese buyers appear to be requesting lower colors and more imperfect goods. Price remains the most influential factor, as buyers are increasingly willing to compromise on quality if they can obtain higher discounts.
Quote of the Week
“The key is not to prioritize what’s on your schedule, but to schedule your priorities.”
— Dr. Stephen Covey, Author and self-help teacher
Note: The full version of this report is sent to RapNet members on a weekly basis. To subscribe go to www.rapnet.com or contact your local Rapaport office.
Disclaimer
©Copyright 2009 by Martin Rapaport. All rights reserved. Rapaport USA Inc, Suite 100 133 E Warm Springs Rd, Las Vegas, Nevada, USA. +1 702 893 9400. This Rapaport Market Report is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report , are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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