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Rapaport TradeWire May 18, 2012

May 17, 2012 6:00 PM   By Rapaport
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Rapaport Weekly Market Comment May 18, 2012

WARNING: Reckless Indian government actions destroying their currency and creating serious threat to diamond market liquidity and price stability. Rupee falls to record low 54.6/$. Diamond markets cautious ahead of Las Vegas shows as European crisis fuels uncertainty. Gold jewelry demand +14% to $28.3B but volume -6% to 519.8 tons in 1Q as Indian demand slumps and China grows. Richemont’s FY jewelry sales +32% to $5.9B. Christie’s Geneva jewels sells $110.2M (87% by lot). Sotheby’s Geneva jewels sells $108.4M (94% by lot) with Beau Sancy 34.98 ct., modified pear, double rose cut diamond fetching $9.7M ($277K/ct.).

RapNet Data: May 17
Diamonds   872,458
Value $5,987,353,734
Carats   938,791
Average Discount -26.28%

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  The challenge to the sustainability of this industry is no longer limited to stemming the trade of conflict diamonds, but today, it also means ensuring that we support the fledgling democracies, and emergent economies previously ravaged by conflict fueled by the illicit trade of this commodity. How do we take this commodity which has been distorted into a symbol of oppression, violence and inequality into a beacon of hope and prosperity for all? It can only be by ensuring that the citizens of these producer countries enjoy a fair share of the revenues generated from their diamond endowments.

Susan Shabangu | South Africa's Minister of Mineral Resources

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, Mumbai, Dubai, and Shanghai. To get on the fast track, email your resume to

Global Gold Demand +16% to $60B

The World Gold Council’s quarterly “Gold Demand Trends Report” noted that global demand for gold rose 16% year on year to $59.7 billion in the first quarter of 2012 driven by increased orders out of China, purchases from  central banks and inflows into exchange-traded funds.  By volume, however, gold demand fell 5% to 1,097.6 tonnes during the quarter due to the introduction of import taxes in India and higher gold prices.

Gold Jewelry demand grew by 14% year on year in the first quarter to a record $28.3 billion, but it fell 6% by volume  to 519.8 tonnes.   Weakness in demand was observed from India and some Middle Eastern markets and from Europe, while a number of markets, primarily China, Russia and Egypt, generated growth.

U.S. Jewelry Prices Hold Steady in April

The U.S. consumer price index (CPI) for jewelry was flat in April, rising by just 0.5% year on year to 176 points.  The index was at its lowest level since May 2011 and it finally broke a six-month long string of readings of more than 180 points, which have weighed on jewelry prices this past year. Nonetheless, the CPI for jewelry in April marked the sixteenth consecutive month of a reading above 170 points, reflecting higher operating costs at the counter along with rising wholesale prices of precious metals, diamonds and gemstones.

Diamdel Observes Steady Rough Demand in April

Diamdel concluded its latest rough auction, Diamdel Days, and observed that global demand held firm in April with India showing the most consistent growth. Diamdel's rough sale in April was 99.4% by lot. The Diamdel Days sale was held from April 16 to April 30 and engaged 158 bidders and offered 514 lots.  The auction sold 511 lots to 94 different buyers, with no buyer winning more than 6% of the lots sold. Non-sightholders won 59% of the goods sold by value at the auction.

The History Behind Beau Sancy Diamond

WATCH NOW:  The Sotheby’s Geneva sale of Magnificent Jewels and Noble Jewels was 94% sold by lot and achieved $108 million.  The two-day sale included numerous lots that sold for more than $1 million, including the Beau Sancy diamond, all of which are detailed in the video. Also in the broadcast, CIBJO's president Gaetano Cavalieri discusses important ethical initiatives in the pipeline that will work toward improving overall consumer confidence in the diamond and jewelry industry.

Christie's Geneva Auctions Net $110M

Christie's achieved a combined total of just over $110 million at its three Geneva auctions held this week, the highest sales total for a series of jewelry auctions at Christie's Geneva. Christie's Magnificent Jewels sale realized $72.3 million and was 84% sold by lot and 86% sold by value.

The top lot was an antique Indian emerald, diamond and enamel sarpech, which sold for $4.7 million, setting a world record price for an Indian sarpech at auction. A pair of 16.21-carat and 15.67-carat, pear-shaped, D, VVS2, potentially IF diamond ear pendants by Harry Winston sold for $4 million or $127,500 per carat, while a 47.15-carat octagonal-cut Burmese sapphire brooch by Mellerio sold  for $3.6 million or $77,500 per carat.

U.S March Jewelry Store Sales +6%

U.S. jewelry store sales rose 6% year on year to $2.1 billion in March, at almost the same pace of inflation as the consumer price index rose 5.9% for the month as well. An advanced estimate of sales for U.S. department stores during the month of April were poor and realized a 4% year on year decrease to $14 billion. Given that the Easter holiday fell earlier in 2012, on the first weekend in April, the combined sales for March and April at department stores reflected better results, but still they declined by 0.3% to $28.8 billion.

Richemont FY Profit +43%

Richemont reported that group sales rose 29% year on year to $11.39 billion and profits rose 43% to $2 billion for the fiscal year that ended on March 31. Sales at Richemont’s jewelry brands, which include Cartier and Van Cleef & Arpels, increased 32% to $5.90 billion, while sales at its watchmakers increased 31% to $2.98 billion. Revenue growth was driven by higher demand from the Asia-Pacific region, new product launches and store openings.

JCPenney's Records 1Q Loss of $163M

J.C. Penney reported that its first quarter sales fell 20% year on year to $3.15 billion for the three months that ended on April 28.  The retailer also reported a net loss of $163 million, which included an  adjusted net loss of $55 million plus $76 million in extensive markdowns and restructuring costs related to its overhaul strategy underway. One year ago, the retailer reported net profit of $64 million. J.C. Penney anticipates that it will incur additional restructuring charges throughout the fiscal year as it takes aggressive action to simplify its operations and  infrastructure.

C. Mahendra Exports FY Profit -28%

C. Mahendra Exports Ltd. reported that net sales rose 6% year on year to $361.1 million for the fiscal year ended on March 31.  Net profit, however, fell 28% to $7.7 million during the year as total expenditures rose 7% to $344.9 million and finance costs surged 47% to $19.5 million.

Suashish's 4Q Profit More Than Doubles

Suashish Diamonds Ltd. reported that net sales fell 3% year on year to $42.2 million during its fourth fiscal-quarter that ended on March 31, 2012. Net profit, however, more than doubled to $1.3 million as expenditures fell 13% to $40.6 million during the quarter. For the fiscal year, the company’s net profit decreased 38% year on year to $7 million while net sales rose 12% to $210 million.

Diamond Circle Capital's Board Rejects Buyout Offer

The board of directors of Diamond Circle Capital Plc concluded that it was not in the interests of shareholders to accept a buyout offer made by Abdallah Chatila on May 11 for $3.50 per share. The board also stated that the offer fundamentally undervalues the shares, and believed that if it were to undertake a managed portfolio liquidation, it would be possible to offer greater returns to shareholders than what Chatila proposed.

Cautious Consumer Spending Ahead

Unity Marketing's proprietary Luxury Consumption Index (LCI) shows ambivalence on the part of the affluent U.S. households with an average income of $274,900. Present trends from the LCI will likely translate into more cautious consumer spending into the Christmas 2012 season and the beginning of 2013, according to consulting company.  Therefore, retailers and marketers are advised to be reserved in their expectations of consumer spending for the next two quarters.  Customers with means will still indulge, but they are very particular about where they invest their spending, and will demand quality over quantity.

WDC Discusses Wider Definition of 'Conflict Diamonds'

Members of the World Diamond Council (WDC) expressed support for discussions to widen the conflict diamonds definition in the Core Documents of the Kimberley Process Certification Scheme, beyond the current definition which limits its scope to diamonds that finance civil conflict. At its annual plenary session held this week in Vicenza, the WDC affirmed a proposal that conflict diamonds should cover "diamond-related violence in rough diamond producing and trading areas." In particular, U.S. Ambassador Gillian Milovanovic (pictured), who is this year's KP chair, suggested that the definition of conflict diamonds be modified to cover "rough diamonds used to finance, or otherwise directly related to armed conflict or other situations of violence."

ALROSA's FY11 and 1Q12 Results

ALROSA reported that its fiscal year revenue rose rose 21% year on year to $4.4 billion in 2011 and profit surged 126% to $856 million. In a separate report, ALROSA's revenues for its first quarter of 2012 rose 40% year on year to $1.04 billion for the three months that ended on March 31. Diamond exports during the quarter accounted for 77% of ALROSA's sales, up from only 70% one year ago. The domestic market accounted for 23% of sales. Rough diamond sales increased to 96.4% of total revenue in the first quarter, while cut diamond sales dropped to 3.6% from 4.9% one year ago. ALROSA sold 88.1% of exported rough diamonds on the open market, up from 83.1% one year ago.

Lucara's 1Q Loss Grows to $4M

Lucara Diamond reported its first fiscal-quarter expenses were $3.3 million, up from $1.2 million one year ago, and it recorded a net loss of $4.2 million compared with $1.9 million. The company's net cash position fell to $26.3 million for the three months that ended on March 31, compared with $48.6 million one year earlier. Construction costs for Karowe as of March 31 have been $93 million and Lucara anticipates completing the project on budget with an additional cost of $24.5 million.

Namakwa's Kao Rough Tender Nets $6M

Namakwa Diamonds sold 16,388 carats for $6.47 million or an average $395 per carat at the first Antwerp sale of diamonds from its Kao mine in Lesotho. The sale, which took place through I. Hennig & Co.'s tender partner Fusion Alternatives, achieved prices 17% higher than initial estimates, resulting in an additional $1 million in sales income.

The largest diamond sold was a 38 carat stone that realized $253,384 or $6,668 per carat, while an 11 carat diamond sold for $165,220 or $15,020 per carat. Four diamonds with sizes varying between 6 and 14 carats sold for an average $7,100 per carat.

Firestone's Liqhobong Tender Nets $5M

Firestone Diamonds sold a total of 67,148 carats from its Liqhobong mine for $4.7 million or an average $71 per carat at two tenders held during the company's first quarter.  The junior miner noted that while prices for better-quality diamonds are strengthening and in some categories the prices have crept up to levels not seen since June 2011, the prices of brown diamonds, near-gem quality and small stones remains depressed and under pressure.

Rio Tinto Appoints Malkani to Oversee Bunder Project

Rio Tinto appointed Tarun Malkani to lead its Bunder diamond project in Madhya Pradesh, India. Malkani will assume the position of chief operating officer on July 1 after serving as director for Rio Tinto's aluminum business in India.  Malkani, an engineer by trade, joins the diamond division of Rio Tinto as the Bunder project moves into the advanced stages of its pre-feasibility study.

Diamond Industry Stock Report

Broad-based selloff of retail and mining shares continues this week. The only exception, with slight gains this week were: Blue Nile (+0.6%), Walmart (+4.3%), PPR (+0.7%), Gitanjali Gems (+1.0%), and Goldiam Intl. (+1.3%). U.S Jewelers and retailers lost out the most this week, especially JCPenney (-23.3%), Zale (-18.8%), Nordstrom (-9.3%), Macy's (-6.2%), Signet (-6.1%), Saks (-5.6%), Tiffany (-5.5%), and Kohl's (-4.5%). Read the extended industry stock report for this past week

  May 17 May 10 Chng.  
$1 = Euro 0.787 0.770 0.017  
$1 = Rupee 54.35 53.26 1.1  
$1 = Israel Shekel 3.83 3.81 0.02  
$1 = Rand 8.33 8.00 0.33  
$1 = Canadian Dollar 1.01 1.00 0.01  
Precious Metals        
Gold $1,573.90 $1,594.80 -$20.90  
Platinum $1,456.00 $1,484.00 -$28.00  
Stock Indexes       Chng.
BSE 16,070.48 16,420.05 -349.57 -2.1%
Dow Jones 12,442.49 12,845.74 -403.25 -3.1%
FTSE 5,338.38 5,543.94 -205.56 -3.7%
Hang Seng 19,200.93 20,227.28 -1,026.35 -5.1%
S&P 500 1,304.86 1,357.99 -53.13 -3.9%
Yahoo! Jewelry 933.88 958.75 -24.87 -2.6%

Polished and rough trading activity

Polished trading is restrained and the dollar reached new highs against the rupee, furthermore liquidity is very tight and there is ample supplies of rough in the market.    Read the full report.


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