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2012 Diamond Review
Editorial
Dec 28, 2012 5:00 AM
By Avi Krawitz
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RAPAPORT... There’s no doubt that 2012 was a struggle for the diamond industry. Businesses continued to navigate the persistent global economic fallout, while assessing the impact of the numerous significant industry-related developments that occurred during the year. Bucking the trend of previous years, the U.S. proved its worth as the world’s largest market for diamond jewelry with stable demand there compensating for a slowdown of growth in China and India.
There were several important news events that changed the shape of the industry for years to come, including: Anglo American’s buyout of the Oppenheimer’s stake in De Beers; BHP Billiton’s exit from the industry and Harry Winston’s emergence as a major rough producer; De Beers relocating its sorting to Botswana and reshuffling its corporate structure; and Botswana’s establishment of the Okavango Diamond Company. There were non-disclosure issues that saw CVD synthetic diamonds being traded without disclosure; tinted Zimbabwe Marange diamonds being traded 10 percent to 15 percent below non-tinted goods; Israeli authorities raiding diamond businesses for their invoicing and reporting methods; and the industry’s largest lender ABN Amro in dispute with major Belgian manufacturer, Arjav Diamonds.
Still, it was U.S. stability and Indian uncertainty that most defined the diamond market in 2012. Given its size and spread across the diamond industry, India was arguably the story of 2012. New duties on precious metals imports, including a 2 percent duty on polished diamonds, retroactive taxes, the weak rupee, high rupee-based gold prices, tighter bank lending and liquidity, and sluggish domestic demand all contributed to the slump in trade in the country.
In the weak global economic environment, dealers and manufacturers replaced confidence with caution, as their profit margins were squeezed. Wholesalers and retailers followed suit and curbed their buying, carefully managing smaller inventory.
With just a few days left in 2012, the RapNet Diamond Index (RAPI™) for 1 carat certified diamonds fell about 12.5 percent during the year, extending the downtrend that began in August 2011. An in-depth review of prices will be published shortly in the upcoming Rapaport Diamond Price Statistics Annual Report 2012 in the January edition of the Rapaport Magazine.
The data reflects an uncertain market that was weakest in the third quarter but that remained tentative even as trading improved toward the end of the year. The following is a summary of the key issues that impacted the diamond market each month, as reported in Rapaport’s Weekly Market Comments.
While these should not be used as a means to forecast the year ahead, they provide an important reference point by which current trading can be measured. The trade begins 2013 with renewed optimism, but it also recognizes that the events, issues and conditions that influenced the market in 2012 will continue to do so in the year to come. Here’s hoping 2013 will be less of a struggle and one of growth and profitability for all.
January
• Jewelry retailers report steady 2011 Christmas sales with tight profit and increased revenue due to higher prices.
• High expectations for jewelry sales during the Chinese New Year but diamond dealers cautious as economic growth slows.
• India imposes 2% import tax on polished diamonds. Indian markets confused and concerned with expectations of lower polished prices. 
• Rough selling at slightly below Diamond Trading Company (DTC) box prices in dealer market ahead of January sight.
• Rough trading weak as ALROSA cuts prices by about 5%, De Beers reduces prices and changes assortments.
• Israeli police arrest 16 people in diamond exchange on money laundering charges.
• RAPI for 1 ct. -1% in January.
February
• Far East diamond demand restrained but strong gold demand spurs jewelry sales during Chinese New Year.
• Hong Kong show okay with steady sales and stable prices improving market sentiment.
• Belgian polished suppliers hold prices firm despite weak trade at Antwerp Diamond Fair.
• Buyers remain cautious due to uncertain global economy.
• Rough premiums improve but confusion remains over DTC box values.
• Improved demand at rough tenders but excess supply expected to keep dealer trading weak.
• De Beers keeps prices stable and rough dealer markets improve slightly with most boxes trading close to DTC list.
• Israeli police investigations significantly reducing local trading activity.
• Concern that India’s new 2% protectionist polished import tax is destroying its role as primary trading center.
• RAPI for 1 ct. -1.8% in February.
March
• Global financial and commodity prices soften as European crisis persists and China, Brazil and India lower growth forecasts. U.S. retail demand stable.
• Rough premiums rise as market sentiment improves.
• Small DTC March sight with prices +2% as sightholder contracts end.
• Indian rough demand improves but manufacturing still restrained amid tight cutter profit margins.
• Rio Tinto cuts number of Select Diamantaire clients to 13, explores sale of diamond business.
• Fairly good activity at Basel show with demand for large fancy color and fancy shapes.
• Polished trading advances on steady Far East and U.S. demand.
• Indian jewelers limit diamond buying ahead of March 31 financial year-end, declare strike against government tax hike on precious metals imports.
• Tiffany & Co. countersues Swatch Group for $590M damages in failed marketing partnership.
• Botswana creates Okavango Diamond Company to conduct government rough sales.
• EU extends sanctions on Zimbabwe’s Marange diamonds to February 2013.
• RAPI for 1 ct. +0.2% in March.
April
• Indian domestic jewelry market in upheaval as proposed government taxes spark protests. Month-long strike with losses estimated at $200M/day suspended on government commitment to review proposed gold and jewelry tax.
• U.S. polished demand stable, Far East demand improves ahead of May Day weekend.
• Strong Indian rough demand, but rough market cautious ahead of May DTC sight.
• Rough prices appear unsustainable at current levels as polished prices have not kept up with rough price increases.
• Diamond manufacturers continue to suffer from poor or negative profit margins.
• Liquidity tight.
• De Beers confirms 75 DTC sightholders for 2012-15.
• RAPI for 1 ct. -0.2% in April.
May
• De Beers prices firm slightly despite weak rough trading on the secondary market.
• Pressure for higher polished prices is coming from high rough prices rather than improving consumer demand.
• Rupee falls to record low. Indian Reserve Bank orders all foreign currency holders to convert 50% of their balances to rupee in reckless attempt to control plunging rupee.
• Diamond markets cautious as European crisis fuels uncertainty.
• Trading slow with low expectations for Vegas shows. U.S. market stable in spite of global economic uncertainty that has weakened foreign demand. 
• CVD synthetic diamonds, diamonds triple treated to avoid detection and diamonds recut to match higher grade GIA reports, being traded without disclosure. IGI finds hundreds of undisclosed synthetic diamonds at labs.
• Graff withdraws $1B IPO as financial markets unfriend Facebook.
• RAPI for 1 ct. -0.6% in May.
June
• JCK Las Vegas show exceeds low expectations with very good U.S. demand for affordable VS-SI certs and commercial goods.
• U.S. taking on role as leading market with steady but price sensitive consumer demand.
• Expensive large stone demand weak but Triple Ex cut certs selling well to Hong Kong.
• Overall demand insufficient to support unsustainably high rough price levels.
• Diamond markets under increasing price pressure as Indian liquidity dries up and rough prices too high relative to polished.
• De Beers re-assortments adjust prices upward for SI quality and lower for better qualities.
• DTC sightholders, tired of losing 10% to 20% on overpriced rough, refuse boxes.
• Rough dealer prices decline with DTC boxes selling at discounts.
• Far East demand remains sluggish. Polished prices under increasing pressure as poor Hong Kong show disappoints suppliers.
• India remains highly problematic with tight liquidity and weak local demand.
• Global markets quiet with increasing concern about global recession. U.S. remains best market for polished.
• RAPI for 1 ct. -1.6% in June.
July
• Diamond markets quiet with U.S. on vacation and polished inventories sufficient to see through the third quarter.
• Far East buyers cautious and Indian suppliers under pressure as economic outlook weakens.
• Buyers avoiding large purchases while suppliers adjusting to lower prices.
• Rough inventories rise as polished trading volume declines.
• Weak rough trading.
• De Beers drops prices average of 3% but sightholders continue to reject non-profitable DTC goods.
• Rough markets under pressure with prices softening, inventories rising and cutters losing money.
• RAPI for 1 ct. -5.4% in July.
August
• All eyes on India as polished suppliers reduce prices while Belgium and Israel are on vacation.
• Indian market under pressure as weak rupee reduces domestic retail demand and tight credit limits purchasing power and export financing.
• Mumbai show signals slight increase in domestic jewelry demand with Indians buying jewelry from Indians, while international diamond suppliers experience tough environment due to import taxes.
• Indian cutters under pressure to keep workers while demand is below capacity and liquidity is tight.
• Polished demand uncertain with supply manipulations by mining companies unlikely to increase polished price levels.
• Steady demand for inexpensive lower-quality diamonds, while better-quality stones remain weak.
• De Beers reduces prices about 10%. Cutters hope cheaper rough will enable profitable fourth quarter season.
• ALROSA lowers supply to the market and approves sale to Gokhran (Russian Treasury) for first time since 2009.
• Anglo American completes Oppenheimer buyout of De Beers. De Beers shifts diamond sorting operations from London to Gaborone.
• RAPI for 1 ct. -0.8% in August.
September
• Market attitude better as cutter profitability improves due to lower rough prices.
• Chinese buyers hoping recent rough price reductions will enable lower polished prices but dealers holding price levels to avoid losses.
• Prices for SI goods firm but VVS qualities doing poorly.
• Polished suppliers hoping that renewed Far East demand will improve industry sentiment and stabilize price levels.
• Polished trading selective and price sensitive as Hong Kong show reflects mediocre Far East demand ahead of China’s October 1 holiday.
• Sales better than expected but price sensitive Chinese buyers still not buying for inventory.
• Rising concerns about polished shortages as Indian manufacturing remains below capacity.
• Mining companies under pressure due to weak demand.
• Rough trading quiet and stable following De Beers price cut with DTC boxes fetching low single-digit premiums.
• Rough demand weak with tight cutters’ profit margins.
• RAPI for 1 ct. -0.7% in September.
October
• Retailers maintaining tight inventory and limiting purchases to short-term demand.
• Stable jewelry demand during China’s Golden Week but Far East consumers are cautious and selective due to the tough global economy.
• Diamond manufacturers reducing output as mining companies lower rough production targets.
• Diamond trading relatively weak as buyers uncertain if prices have bottomed out, but market sentiment improving slightly as holiday season approaches.
• Buyers delaying inventory purchases amid persistent price uncertainty.
• Large De Beers sight with prices stable.
• Dealers hoping polished market will stabilize but recent surge in rough sales will significantly increase polished supply.
• Rough trading weak with slight premiums on DTC boxes.
• De Beers consolidates brand to phase out DTC, Diamdel, names and appoints Cynthia Carroll as chairperson.
• RAPI for 1 ct. -1.8% in October.
November
• U.S. wealthy brace for tax hikes as President Obama wins second term in the White House.
• Far East retailers hope China’s leadership change will restore consumer confidence and luxury spending.
• Indian retail jewelry demand improves as Diwali sales beat low expectations on strong gold demand.
• Rough trading weak after uneventful De Beers sight and as Surat factories close for one month Diwali vacation.
• Polished trading improves as dealers fill last-minute holiday orders.
• Heavy retail discounting expected as U.S. consumer confidence improves slightly.
• Bargain shoppers drive Thanksgiving weekend sales. Jewelry mixed with strong online sales growth but tough economy weighs on top jewelers. 
• Harry Winston to buy Ekati mine for $500M.
• ALROSA reveals Russia diamond reserve at 631M cts, signs supply deals with Chow Tai Fook and Tiffany & Co.
• Cynthia Carroll resigns as Anglo CEO, De Beers chairperson.
• RAPI for 1 ct. -0.7% in November.
December
• Holiday demand drives steady polished trading with very good U.S. demand for SI qualities.
• Jewelers discounting heavily.
• U.S. market steady with consistent orders from major retailers amid concern increased taxes will significantly reduce consumer demand for luxury products.
• Demand for 0.30-0.40ct., H+, VS+ certs. improving as Chinese New Year approaches.
• Prices for green, grey and brown tinted diamonds 10-15% below non-tinted as green tint often indicates Marange, Zimbabwe origin.
• Expensive and small De Beers sight.
• Weak rough trading and low premiums on De Beers boxes as Indian cutters hold enough inventory for low post-Diwali manufacturing but with shortages in popular SI, non-tint, GIA-certified stones.
• Demand for non-De Beers rough improves on expectations of limited supply.
• ALROSA sells $230M rough to Gokhran in 2012.
• ABN Amro Bank in dispute with Arjav Diamonds Belgium with claims of $154M and Arjav counterclaim of $230M.
• RAPI for 1 ct. expected approximately -0.1% in December.
Pictures:
1. India’s Bharat Diamond Bourse (BDB), where many of the large polished suppliers are now located. (Rapaport news)
2. International Gemological Institute (IGI) lab in Antwerp, where hundreds of non-disclosed CVD synthetic diamonds were found. (Source: IGI)
3. De Beers and Botswana officials at the launch of De Beers sorting activities in Gaborone, Botswana. (Source: De Beers)
4. BHP Billiton exits the diamond sector by agreeing to sell the Ekati mine to Harry Winston. (Source: BHP Billiton)
The writer can be contacted at avi@diamonds.net.
Follow Avi on Twitter: @AviKrawitz
This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.rapnet.com or contact your local Rapaport office.
Copyright © 2012 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.
Disclaimer: This Editorial 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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Tags:
Avi Krawitz, Rapaport
Diamonds
De beers
ALROSA
Tiffany
Chow Tai Fook
ABN Amro
CVD Synthetics
BHP Billiton
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