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Market Comments 7/26/2012
Jul 26, 2012 6:00 PM
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Rough markets under pressure with prices softening, inventories rising and cutters losing money. Polished trading very weak as Israel and Belgium head to vacation and liquidity pressures mount in India. De Beers 1H profits -44% to $386M with rough sales -12% to $3.1B and production -13% to 13.449M Cts. Zale secures new $665M credit facility. Swatch Group 1H net sales +16% to $3.7B, net income +25% to $729M. Bulgari boosts LVMH 1H jewelry & watch sales 133% to $1.6B, operating profit +87% to $195M. Antwerp bourses to close July 30 to Aug. 19 and Israel Diamond Exchange to close Aug. 5-19 for vacations.
Fancies: Fancy market doing relatively well as significantly lower prices than rounds attract value conscious buyers. Cushions are very hot with supply shortages. Weak demand and lower prices for rounds are encouraging manufacturers to shift production back to fancy shapes. Dealers report fancy shape market for excellent shapes and cuts is better and more profitable than round markets. Large fancies stones relatively stable but sales and liquidity are weak. There are extreme price differentials between excellent/fine and average cut fancy shapes. Fine cut stones may not be available as suppliers tighten discounts and resist lower prices. Square cuts doing better than curves.
Global Markets
United States: Wholesale trading continues to be slow during July, as is expected for this time of year. Wholesalers are hesitant to replenish their round inventory as they expect prices may further soften on certain items. They are seeing some replacement value in IF-VVS clarity goods with rough price decreases in these stones more pronounced. However, demand for these polished goods remains weak. There is good demand for round and princess, 0.5-carat to 1.5-carat, G-I, SI- goods. Retailers with a strong focus on bridal are seeing steady sales.
Belgium: There is an excess of rough and polished inventories, particularly among some of the larger dealers and manufacturers in Antwerp. Trading of De Beers and ALROSA goods has been limited due to their high prices and low profitability for dealers and manufacturers. Polished demand remains subdued with commercial quality and lower-end goods selling better than high-end categories.
Israel: Polished trading remains quiet but steady. Suppliers are selling rounds at lower prices and are pushing to close deals before the August break. The Israel Diamond Exchange is scheduled to close for its annual summer break from August 5 to August 16. Some U.S. buyers have been seen in the bourse looking for goods, but dealer demand is below levels seen this time last year. There is good demand for clean-cut, triple EX goods. Rough trading is quiet following last week’s Diamond Trading Company (DTC) sight with some larger dealers holding onto rough inventory until profit margins improve.
India: Polished demand improved slightly from last week but overall trading continues to be limited due to price uncertainties. Buyers are not making large-scale purchases despite the fact that sellers are ready to adjust prices on certain categories. There is steady demand for SI-I1 clarity goods, while demand remains weak for better quality stones. Rough trading remains under pressure due to weak demand and high prices of De Beers and ALROSA goods. Manufacturers’ profit margins are tight and many are finding it difficult to recover rough costs on the resulting polished. Manufacturing levels therefore continue at levels below capacity and rough inventories have increased. Tight liquidity and a volatile exchange rate continue to impact confidence and business activity.
China: Retail activity slowed this week, particularly in South China which was hit by Typhoon Vicente and subsequent flooding. Wholesale diamond demand remains restrained as buyers are holding back from building additional inventory during the summer months. Trading is expected to remain slow through August and dealers are expected to increase their buying only once they see greater price stability and as they head into the October Golden Week season.
Hong Kong: Erratic weather has affected trading with financial markets and airports closed for a day this week due to Typhoon Vicente. Trading generally slows during the seasonal heat typical in July. Regardless of the weather, Hong Kong has seen a slump in diamond demand, largely due to a slowdown in economic growth in Mainland China. There is relatively good wholesale demand for VS-SI goods.
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