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Rapaport TradeWire September 18, 2013
Sep 18, 2013 3:00 PM
By Rapaport
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Rapaport Weekly Market Comment
Sept. 18, 2013
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Hong Kong Show just OK with selective Chinese buyers focusing on lower price points. Mediocre demand fails to lift diamond market sentiment. Trading levels lower than previous years but prices hold relatively firm. Rough trading quiet due to poor liquidity and less availability as many sightholders refused last sight. ALROSA 2Q revenue +9% to $1.3B, profit +139% to $259M. Petra FY revenue +27% to $403M, profit of $28M vs. loss of $2M a year ago. Belgium’s Aug. polished exports +36% to $548M, rough imports +28% to $842M. Japan’s July polished diamond imports -7% to $79M. U.S. July jewelry store sales +9% to $2.2B. THE RAPAPORT PRICE LIST WILL NOT BE PUBLISHED SEPT. 20 & 27 DUE TO SUCCOT HOLIDAY. Visit diamonds.net/TradeScreen for continuously updated RapNet prices.
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| RapNet Data: Sept. 17 |
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| Diamonds |
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1,034,054 |
| Value |
$6,731,762,746 |
| Carats |
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1,156,529 |
| Average Discount |
-27.85% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Everybody’s kind of battening down the hatches to prepare for a knock-down, drag-out fight for Christmas sales. Are retailers going to be promotional? Yes. Will they start early? Yes, that’s probably true, too.
Dorothy Lakner | Topeka Capital Markets
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Careers@Rapaport
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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. View jobs now.
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INDUSTRY
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EU Preps to Lift Sanctions on ZMDC
In theory, the European Union (EU) agreed to lift sanctions on the Zimbabwe Mining Development Corporation (ZMDC), which controls Zimbabwe's minerals, however, an official statement on the details and timing had not been released as of press time. The U.S. continues its sanctions on ZMDC as well as on the Minerals Marketing Corporation of Zimbabwe (MMCZ), Marange Resources and Mbada Diamonds, meaning that U.S. businesses are forbidden to trade diamonds or minerals that fund, in any way, those companies or President Robert Mugabe's regime.
Belgium has been fiercely lobbying the EU since January to lift sanctions on ZMDC. The EU relaxed sanctions on some individuals in Zimbabwe in March and adopted a resolution to review sanctions on the ZMDC only after the passage of Zimbabwe's constitution, which occurred in May, and a smooth presidential election in July. It appears at this stage that the EU will hold sanctions on Mugabe and nine of his associates.
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India Increases Gold Jewelry Duty
India increased an import tax on gold jewelry to 15% from 10% in an effort to further reduce gold imports and in turn lower the country's current account deficit. In August, India raised the import tax on bullion to 10% from 8% but kept the gold jewelry tax unchanged. The move is widely expected to give a boost to national sales and manufacturing of gold jewelry, as well.
Government measures taken in the past 18 months to contain gold imports have resulted in reduced imports, according to the State Bank of India (SBI). Gold imports declined to $650 million by value in August compared with $2.97 billion in July. India's gold imports so far this year have fallen to $21.9 billion by value compared with $53.8 billion one year ago, according to the bank. India's current account deficit as a percentage of the gross domestic product (GDP) surged to 4.8% during its fiscal year 2013 and the country is attempting to lower the deficit to 3.8% of the GDP for fiscal 2014.
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Weaker Economies Pinch Hong Kong Show
Diamond exhibitors reported mixed sales at the Hong Kong Jewellery & Gem Fair as buyers focused on lower price point, commercial diamonds ahead of the fourth quarter. Prices held relatively firm throughout the show maintained by steady Chinese demand for smaller certified goods. Indians resisted prices, but Chinese buyers remained flexible given their demand for the upcoming Golden Week. Exhibitors reported fewer active Indian buyers at Hong Kong in part because of the volatile rupee, but those who attended focused primarily on buying lower-end goods. Even the larger goods that did sell were in lower-quality categories.
Dealers reported that the smaller, pointer-size, certified goods were the strongest, continuing a market trend throughout 2013. There was strong demand for 0.30 to 0.60-carat, G-, VS-SI, Triple EX goods, while demand for J-M, VVS goods in the same sizes was steady. Similarly, they indicated stable demand for 1-carat, J-M, VS-SI goods. Demand for larger, better-quality diamonds was relatively weak, while some reported a bit of weakness in the 0.70 to 0.99-carat category. Demand for fancy shape diamonds was steady.
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RETAIL & WHOLESALE
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U.S. Jewelry Store Sales +9%
U.S. jewelry store sales rose 9% year on year in July to $2.223 billion, continuing the strong growth trend that began in November 2012. However, the consumer price index (CPI) for jewelry in July jumped 4%, marking the greatest gain of the year so far. For the first seven months of 2013, jewelry store sales have risen 9.5% year on year to $17.255 billion, while the CPI has been basically flat.
The strongest month for store sales growth has been April, when store sales skyrocketed 21.6%, followed by January with an increase of 13.4% and March with a 10.6% improvement. In contrast, U.S. department store sales have had a very difficult year. Advanced sales estimates for the sector in August fell 4.9% to $14.5 billion. So far this year, department store sales slid 8% in February, dropped 7% in April and declined 6% in March, June and July. Sales in May slipped 2%. For the January through August period, department store sales have declined 5.1% year on year to $106.3 billion.
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Jewelry Inflation Rises
The U.S. consumer price index (CPI) for jewelry rose 2.5% year on year in August to 182.13 points, the highest reading since the record high of 183.19 points in January 2012. However, for the first eight months of 2013, the jewelry CPI was basically flat, down just 0.4%.
After reaching a record early in 2012, the prices of gold, platinum and diamonds have remained under pressure, contributing to a slightly lower CPI for most of this year. Gold was about 16% lower year on year in August 2013 and platinum was down by almost 2%. The RapNet Diamond Index (RAPI) for 1-carat polished diamonds was down 5.8% in August. RAPI for 0.50-carat diamonds was 4.4% lower and RAPI for 3-carat diamonds had fallen by 4.3%. But RAPI for 0.30-carat diamonds had risen 5.3% from one year earlier.
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Get Ready to Roll
ShopperTrak released its Christmas-season prediction and concluded that U.S. retailers will have to work especially hard to earn their share of the consumer wallet. The group, which analyzes shopper data, predicted that sales of general merchandise, apparel and accessories, furniture and other products would increase 2.4% year on year for the November and December holiday shopping season. Retail sales rose 3% during Christmastime 2012.
Consumers are expected to visit fewer stores and ShopperTrak estimated that total retail store traffic will decrease 1.4%. Additionally, the group warned retailers that they have six fewer days this year to attract consumers between Black Friday, on November 29 and Christmas. Bill Martin, the founder of ShopperTrak, explained that consumers remain cautious and are not prepared to splurge. Retailers who deliver a seamless experience -- both in-store and at every customer touch-point -- have the chance to capitalize on Christmas sales. “Retailers must have their holiday marketing and operations ready to go when November begins, as consumers will be ready to take advantage of those deals,” he said.
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ODC Officially Opens
The Okavango Diamond Company (ODC) opened its doors in Gaborone, Botswana, following a successful pilot sale of rough diamonds in July. Botswana's President Khama attended the grand opening and applauded ODC for providing the international diamond community another reason to visit and conduct business in the capital city.
ODC will hold regular sales via its customized online auction platform following viewings of its diamonds at its purpose built facility in Gaborone. ODC also plans to introduce fixed term supply contracts in 2014. ODC’s inaugural sale will start on September 23, with viewing, culminating in an online auction to be held on October 9.
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Future of India's Diamond Industry
WATCH NOW: What does the future of India's diamond industry look like, what challenges must be overcome and changes must take place? This panel discussion was moderated by Martin Rapaport, the chairman of the Rapaport Group of Companies, during the Rapaport International Diamond Conference in Mumbai and fostered a lively discussion featuring Rajiv Mehta, the director of Dimexon Group; Nitin Goenka, the managing director of Goenka Diamond & Jewels Limited and Dr. Suresh Surana, the founder of RSM Astute Consulting Pvt. Ltd.
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Mehta Weighs Manufacturing Solutions
WATCH NOW: Arnav Mehta, the director of Blue Star Diamonds, addresses four key issues and possible solutions in addressing long term goals in India's diamond manufacturing sector at the Rapaport International Diamond Conference in Mumbai.
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Why Is Rough So High?
WATCH NOW: Rough diamond prices have increased between 6% and 13% in 2013. Rapaport's senior analyst, Avi Krawitz, provides a synopsis of what is influencing rough diamond prices in the current diamond market and explains what the industry should expect moving forward. From ALROSA' highly anticipated IPO to De Beers shift under Anglo American and the Botswana government's increasing involvement in the industry, how India sells its polished and buys its rough will also influence the market.
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Equity Firm Buys Gem Shopping Network
Private equity firm Sun Capital Partners Inc. acquired the Gem Shopping Network through an affiliate for an undisclosed sum. Gem Shopping Network reports reaching more than 40 million households and its broadcast streams live online with programing to sell gemstones and jewelry. The Gem Shopping Network was founded in 1995 by Frank M. Circelli and operates out of Duluth, Georgia. The investment firm stated that the network will continue to be run by the current management team. In the past three years the network's sales have grown approximately 45%, according to Sun Capital.
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Sadove, Frasch to Depart Saks
Stephen I. Sadove, the chairman and CEO of Saks Inc. and Ronald L. Frasch, the president of the luxury retailer, will depart when the merger is completed with Hudson's Bay Company before the end of the calendar year.
Sadove (photo, left side) joined Saks' management team in January 2002 and became chief operating officer in March 2004. He was appointed CEO in January 2006 and became chairman in May 2007. He had served on the retailer's board since September 1998. Frasch (photo, right side) joined Saks in January 2004 and was named president in February 2007. Saks operates 41 Saks Fifth Avenue stores, 69 Saks Fifth Avenue OFF 5TH stores and saks.com.
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Ritani Expands Into Canada
Ritani expanded its partnership program into Canada with 12 new premium jewelers throughout the country, joining 60 retail partners in the U.S. Ritani's Canadian jewelers join its omni-channel network that enables shoppers to begin their engagement ring experience online. Customers may purchase direct or have merchandise sent for pick up at a Ritani partner jeweler. It is the local jeweler's connection to the process that Ritani considers to be redefining the online jewelry shopping experience by providing a trusted source who will also build the customer relationship.
Partners benefit from an integrated ecommerce solution, earned in revenue, increased lead generation and marketing material. The new partners in Canada include Calgary Jewelry, Creative Goldsmiths, Damiani Jewelers, Diamond Design, GemOro Goldsmith, Heinrich’s Jewelry, J.H. Young Jewelers, Knar Jewelry, La Mine d'Or Jewelers, Nash Jewelers, Rodan Jewelers and Victoria Jewelers.
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David Yurman Opens in Troy
David Yurman opened a boutique at The Somerset Collection, 2801 West Big Beaver Road in Troy, Michigan. The 1,506-square-foot store was conceptualized by Gabellini Sheppard Associates and features classically modern architecture with every interior design element reflecting the brand's ''luxurious yet relaxed'' aesthetic. The brand stated that it was proud to make a home in the Detroit metro area.
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Chinese Tourists Boost Luxury Quarter's Sales
Shopping guide and services firm Global Blue stated that Chinese shoppers on holiday in London accounted for the largest percentage of international consumer spending in both the West End and on Bond Street, part of London's Luxury Quarter, accounting for 16% and 28% of all sales, respectively. A surge in Chinese tourism is expected in London's Luxury Quarter during Golden Week, the first week of October. During February's Golden Week, the average Chinese shopper spent $3,105 (RBM 19,000 or GBP 2,000) per transaction at Bond Street shops alone, which was significantly higher than Londoners' average of $793 (GBP 500).
London's Luxury Quarter is preparing tours and activities to accommodate a Golden Week crowd. Chinese travelers can download the London Luxury Quarter app (English and Mandarin) to help plan a shopping trip and they can book small group tours in advance to focus on a series of themes such as jewelry, art or cuisine. Within the Quarter itself, many hotels and retailers now accept UnionPay and an increasing number of retailers are employing Mandarin speaking staff to ensure superior Chinese customer service.
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MINING
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ALROSA's Profit Surges
ALROSA's revenue rose 9% year on year to $1.33 billion (RUB 42.77 billion) in the second quarter of 2013 that ended on June 30. Growth was driven by a higher volume of diamond sales, which offset the decline in prices that were achieved during the period. Profit more than doubled to $259 million. The volume of sales increased 14% to 8.8 million carats with gem-quality diamond sales up 25% to 6.9 million carats, while industrial diamonds sales fell 14% to 1.9 million carats.
ALROSA’s diamond inventory on June 30, was 8% lower from December and valued at $772 million.
ALROSA reported that the average price of its gem-quality diamonds sold during the period decreased 8% to $191.4 per carat, following sharp declines experienced in the third quarter of 2012. Compared with the first quarter of 2013, however, rough prices rose 7%.
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Petra's Profit Nears $28M
Petra Diamonds reported a profit of $27.9 million in the fiscal year that ended on June 30, compared with a loss of $2.1 million one year ago. Revenue rose 27% year on year to $402.7 million and production increased 21% to 2.668 million carats. The Finsch mine helped boost overall production as it was the first full year of mining after the company acquired it from De Beers.
The company observed stable rough diamond markets in fiscal 2013, with less volatility compared with previous years. While the company reported flat rough prices during the first half of the year that ended on December 31, prices were firmer during the second half. Petra expects the rough diamond market to remain steady.
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Anglo Departs Pebble Mine
Anglo American, the parent of De Beers, is withdrawing from the Pebble mine, a controversial proposed gold and copper mining project in Bristol Bay, Alaska. The Pebble Limited Partnership was created in 2007 between Anglo American and Northern Dynasty Minerals Ltd. Anglo stated that the Pebble mine would proceed under the sole ownership of Northern Dynasty.
The proposed project at the headwaters of Bristol Bay has attracted many environmental critics in the past few years, including Earthworks and dozens of major jewelers in the U.S.
Anglo American expects to record a $300 million impairment charge on December 31, on a post-tax basis due to this decision.
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Merlin Jump Starts Production
Merlin Diamonds, formerly North Australian Diamonds, recommenced production at its Merlin Diamond mine, which is located 100 kilometers south of Borroloola in Australia's Northern Territory. The most recent parcel of diamonds from the mine was sold on the open market for $1.87 million in 2012.
The Merlin kimberlite field was first discovered by Ashton Mining in 1991. After periods of trial mining and feasibility studies, Rio Tinto acquired Ashton Mining and subsequently sold the mine to North Australian Diamonds Ltd. in 2004. Since then, resource definition drilling and trial production indicated that the mine contains an estimated resource of 7.2 million carats, making it the second largest diamond reserve in Australia after Rio Tinto's Argyle diamond mine.
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Dominion Files Lynx Permits
Dominion Diamond Corporation filed applications for a land use permit and water license with the Wek'éezhii Land and Water Board for mining the Lynx kimberlite pipe at the Ekati diamond mine. The Lynx kimberlite pipe occurs in the southeastern portion of the Ekati mine property, underlying a small lake about 30 kilometers from the main facilities and approximately 3 kilometers to the southwest of the active Misery pit, in the Lac de Gras watershed, and is part of Dominion's buffer zone joint venture, in which it holds a 58.8% interest.
The Lynx project represents an extension of the Misery operations, requiring little new infrastructure, according to Dominion.
The Lynx kimberlite pipe is estimated to have 1.3 million tonnes of indicated resource at 0.80 carats per tonne (cpt) and 0.1 million tonnes of inferred resource at 0.8 cpt. Dominion modeled rough diamond prices for Lynx at $257 per carat.
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STATS
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Japan
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July $Mil. |
%Chng. |
YTD $Mil. |
%Chng. |
| Diamond imports by value |
$79 |
-7% |
$489 |
-7% |
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July Carats |
%Chng. |
YTD Carats |
%Chng. |
| Diamond imports by volume |
203,557 |
2% |
1,375,000 |
23% |
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Belgium
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Aug. $Mil. |
%Chng. |
YTD $Mil. |
%Chng. |
| Polished exports |
$548 |
35% |
$9,011 |
4% |
| Polished imports |
$896 |
18% |
$8,815 |
0% |
| Net exports |
($348) |
3% |
$196 |
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| Rough imports |
$842 |
28% |
$8,876 |
12% |
| Rough exports |
$496 |
16% |
$9,631 |
11% |
| Net imports |
$346 |
52% |
$755 |
7% |
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| Net diamond account |
($693) |
26% |
$951 |
80% |
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ECONWATCH
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Diamond Industry Stock Report
With no real shock to the system, U.S. retail shares hold basically flat, but European shares show continued strength with LVMH (+4%), Kering (+3%) and Swatch (+4%) leading the way. Indian shares mostly lower led by Classic (-11%) and Gitanjali (-8%). Mining shares picking up with Peregrine (+17%) and Rockwell (+67%) leading advancers, but Stornoway (-15%) and Stellar (-12%) marking the downside. View the extended stock report.
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Sept. 18 @ NY Noon |
Sept. 12 |
Chng. |
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| $1 = Euro |
0.749 |
0.752 |
-0.003 |
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| $1 = Rupee |
63.40 |
63.75 |
-0.4 |
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| $1 = Israel Shekel |
3.53 |
3.55 |
-0.02 |
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| $1 = Rand |
9.83 |
9.98 |
-0.15 |
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| $1 = Canadian Dollar |
1.03 |
1.03 |
0.00 |
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| Precious Metals |
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| Gold |
$1,298.10 |
$1,321.80 |
-$23.70 |
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| Platinum |
$1,416.00 |
$1,431.00 |
-$15.00 |
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| Stock Indexes |
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Chng. |
| BSE |
19,962.16 |
19,781.88 |
180.28 |
0.9% |
| Dow Jones |
15,490.69 |
15,300.64 |
190.05 |
1.2% |
| FTSE |
6,551.17 |
6,588.98 |
-37.81 |
-0.6% |
| Hang Seng |
23,117.45 |
22,953.72 |
163.73 |
0.7% |
| S&P 500 |
1,701.75 |
1,683.42 |
18.33 |
1.1% |
| Yahoo! Jewelry |
1,186.69 |
1,188.31 |
-1.62 |
-0.1% |
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INDIA MARKET REPORT
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Polished and Rough Trading Activity
Buyers remain cautious on purchases but good demand for dossiers. Weaker rupee pounding rough markets and liquidity continues to remain problematic for all players. Read the full report.
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