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The Diamond Story of 2013

Editorial

Dec 27, 2013 1:13 AM   By Avi Krawitz
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RAPAPORT... In many respects, 2013 was a momentous, albeit frustrating, year for the diamond industry. There were plenty of positive milestones achieved that will continue to leave their mark for years to come. However, from a trading point of view, the market was as tough as ever with manufacturers struggling to garner respectable profit margins.

Indeed, choosing a “story of the year” is often a matter of perspective.

When talking with diamond manufacturers and dealers, they might list their lack of profitability as the primary issue affecting the market this year. Manufacturers were squeezed as rough prices rose, while polished prices fell. There were, of course, pockets of strong activity with steady U.S. and Far East demand and price increases for 0.30-carat to 0.49-carat diamonds. Still, prices for most other sizes fell, as reflected in the RapNet Diamond Index (RAPI). An in-depth review of prices will be published shortly in the upcoming Rapaport Diamond Statistics Annual Report 2013 in the January edition of Rapaport Magazine.

Adding to manufacturers’ woes, the banks adopted more caution in their lending to diamond firms. Israel’s Bank Leumi closed its diamond unit and the Indian banks grew more conservative following a few high profile disputes and defaults. ABN Amro decided to reduce its financing of rough purchases from 100 percent to 70 percent effective in January 2014. Therefore, tight liquidity was understandably a recurring theme in the manufacturing sector throughout the year.

Indian cutters were further pressured by the sharp depreciation of the rupee, which fell by about 13 percent against the dollar during 2013. The weak rupee affected Indian domestic demand, while government efforts to curb gold consumption also hurt the local jewelry industry. India raised its gold import duty from 4 percent to 10 percent, and there are concerns that it will target diamond import duties next. In contrast, Far East jewelers rode a wave of soaring gold demand as Chinese consumers saw investment opportunities after gold prices slumped in the first half of the year.

Similarly, mining companies capitalized on a competitive rough market and managed to garner price-driven revenue growth, while also raising their production levels. The mining sector would therefore have a different perspective on events in 2013 and might point to their corporate goals that were accomplished.

Botswana’s emergence as an important rough trading center should be counted among the most significant developments of the year. The state-owned Okavango Diamond Company launched its auctions of a portion of Debswana production, while De Beers held its first international sight in Gaborone, having transferred its sales operations from London. In the background, sightholders eventually rejected high-priced De Beers boxes.

ALROSA’s public share offering also might rank as a contender for story of the year. The offering valued the company above $8 billion, and raised its profile and transparency levels in the process. In Canada, production was consolidated with the establishment of Dominion Diamond Corporation, formerly Harry Winston, which now owns the Ekati mine in addition to its stake in the Diavik mine. Meanwhile, Zimbabwe was cleared to sell its Marange rough in Antwerp after the EU lifted its sanctions on the goods.

Industry outsiders probably saw the diamond industry headlines in a completely different light. For the public, the year may have read like a Hollywood script involving a daring diamond heist at the Brussels airport and a series of high-profile jewelry robberies in Europe. On a more positive note, rare diamonds consistently broke records on the auction circuit, reflecting the strong investment demand and provenance attached to the rarest and most beautiful diamonds.

However, while all these events were significant, they don’t necessarily fulfill all of the criteria that might qualify them as the most significant event in 2013. Only one story could claim to truly impact every sector of the diamond market, which will continue to resonate in the long term. Quite understandably, persistent reports that large amounts of synthetic lab-grown diamonds were being mixed with natural diamonds in parcels of melee and pointers stirred a reaction from everyone. The issue raises concerns for miners, manufacturers, dealers, jewelers, bankers and consumers alike.

While the concern about undisclosed synthetics is not a new issue for the industry, it certainly gained prevalence in 2013. Given the potential impact these goods could have on consumer confidence, on natural diamond prices, and the overall integrity of the diamond trade, the issue will likely remain the industry’s biggest challenge in the years ahead. The market will require evolving technological developments and a united industry-wide effort to ensure effective differentiation, detection, disclosure and documentation of synthetic diamonds. For these reasons, the emergence of undisclosed synthetic diamonds in the market is this column’s diamond story of the year for 2013.


The following is an executive summary of the key issues and trends that impacted the diamond market each month in the year 2013, as reported in Rapaport’s Weekly Market Comments:

January

• Diamond markets become conservative as U.S. tax hikes take effect and Far East buyers complete their Chinese New Year purchases.
• Banks scrutinize manufacturers and reduce credit facilities that have encouraged speculation and price manipulation.
• Tight rough supply pushes prices as manufacturers reduce their 2013 rough purchasing budgets.
• De Beers keeps prices stable at $550M sight.
• India raises gold import duty from 4% to 6%.
• India’s Bharat Diamond Bourse inaugurates trading floor.
RAPI for 1ct. +0.1% in January.‎

February

• Steady gold jewelry sales during China’s Golden Week but authorities restrict luxury advertising.
• Indian consumer confidence weakens as economic growth slows.
• Cutting center sentiment improves with rising expectations for March Hong Kong show.
• Shortages drive rough prices higher with some De Beers boxes trading at 5%.
De Beers sight estimated at $550M with ‎re-assortments adjusting prices upward ‎about 4%.
• Polished prices flat and unsupportive of rough increases, with triple EX goods bringing 5% to 10% premiums.
• India approves bonded warehouses in duty-free zones for diamonds and gems.
• Security on alert after ‎‎$50M diamond heist at Brussels airport and $4M hit on De Beers Paris store.‎
RAPI for 1ct. +0.2% in February.

March

• ‎Strong Hong Kong show exceeds expectations, boosts market confidence.
• U.S.-Israel trade week generates busy activity.
• Polished markets steady with strong demand for 0.30-0.40ct., VS-SI goods and oversizes bringing premiums.
• Rough trading slows as speculative dealers can't sell high-priced purchases.
• De Beers announces five new sightholders, bringing total to 82, even as 2013-14 ITO supply forecast is 20% lower than previous year.
• Harry Winston completes $1B retail division sale to Swatch, changes name to Dominion Diamond Corp.
RAPI for 1ct. +0.1% in March, +0.4% in 1Q. Rapaport Melee Index +7% in 1Q.

April

• De Beers raises prices 3% to 8% at $650M sight.
• Secondary market speculation continues with boxes trading at premiums.
• Diamond trading quiet after Passover and Easter holidays, but polished prices firm.
• Cutters cautious with tight polished supply and liquidity problems developing in India.
• Plunging gold prices spur Chinese jewelry demand before May Day holiday.
Basel show disappoints with selective demand for top quality large stones.
• Strong demand and very high prices for exceptional diamonds at auctions:
  o Sotheby’s HK sells round, 28.86ct., D, IF, 3X diamond for $6.9M ($239,532/ct.).
   o Christie’s NY sells cushion-cut, 34.65ct., fancy intense pink diamond for $39M ($1.14M/ct.).
    o Sotheby’s NY sells pear-shape, 74.79ct., D, VVS1 for $14M ($189,397/ct.).
  o Bonhams London sells rare, 5.3ct., fancy deep-blue diamond for $9.5M ($1.8M/ct.).
• India’s Maharashtra State raises VAT on diamonds, precious metals to 1.1%.
• Stakeholders meet at OECD to discuss responsible diamond sourcing standards.
RAPI for 1ct. flat in April.

May

• Manufacturers pressured by high rough prices, low volume trading, weak rupee and tight liquidity.
• De Beers hikes prices about 4% at $600M sight, eliminating premiums and profitability.
• Chinese and Indian consumers and retailers buying gold instead of diamonds.
• Diamond market sentiment improves ahead of Las Vegas shows as U.S. consumer confidence rises and stock markets rally.
• Big stone boom continues:
   o Christie’s Geneva sells pear-shape, 101.73 ct., D, FL diamond for ‎‎$26.7M ($254K/ct.).
   o Sotheby’s Geneva sells cushion-cut, 27.90 ct., D, IF diamond ring for $4.4M ($156K/ct.).
  o Christie's HK sells 75.35ct., D, IF diamond briolette selling for $11M ($148K/ct.).
RAPI for 1ct. -0.1% in May.

June

• Polished prices come under severe pressure due to Indian currency and liquidity difficulties and very weak Chinese, Far East and Indian demand.
• JCK Las Vegas show signals U.S. maintaining stability for global diamond market with steady demand for affordable VS-SI certs and commercial goods.
• Selective Chinese buyers moving to memo.
• Indian trading softens as rupee slumps to record low with jewelers under pressure as govt. raises gold import duty from 6% to 8%.
• Gold, silver fall to three-year lows.
• Indian jewelry companies slump in value with Gitanjali shares down 43% in past week.
• Israeli trading slows as tax authority investigations resume.
• De Beers sight estimated at $540M with stable prices and slightly weaker assortments.
RAPI for 1ct. -0.6% in June, flatin 2Q. Rapaport Melee Index -1% in 2Q.

July

• Rough dealers give long-term credit on the secondary market after poorly timed De Beers price hikes at $600M sight.
• Botswana’s inaugural Okavango auction brings high rough prices challenging De Beers sightholder price levels.
• Indian cutters face liquidity crisis and high rough prices.
• Very little Far East inventory demand and increasing memo availability from India.
• Positive U.S. sentiment compensating for weakness in India and China as Dow Jones index hits new high.
• Indian government requires 20% of all gold imports to be re-exported.
• Thieves take Leviev jewels worth $136M in Cannes.
RAPI for 1ct. -2.1% in July.

August

• Domestic Indian market stalls after Mumbai show as rupee plummets to historic low.
• Global sentiment improves with firm prices at busy Israel diamond week.
• Bigger, better goods holding up nicely, with very strong demand for 10ct.+, better-to-medium quality, excellent-cut rounds and fancies. Imperfect polished for U.S. market doing well.
• Chinese heat wave freezes market with consumers too hot to shop.
• High rough prices and tight bank credit squeezing manufacturing sector as small/medium size cutters shift to polished trading.
• Rough price levels unsustainable as sightholders refuse 20% to 25% of $600M De Beers sight.
RAPI for 1ct. -0.1% in August.

September

• Diamond manufacturers under increasing pressure as liquidity crisis deepens due to weak rupee, expensive rough and tight bank credit.
• Secondary rough market weak with boxes selling at discount and/or long-term credit.
Hong Kong show just OK with selective Chinese buyers focusing on lower price points.
• Trading levels lower than previous years but prices hold relatively firm.
• Polished dealer, retailer and consumer demand very price sensitive with strong focus on SI-I1 goods and continued shift to lower qualities.
• Manufacturers moving to triple EX cut quality as buyers become selective and top cuts bring greater premiums.
• Chinese retail sentiment improves ahead of Golden Week.
EU lifts sanctions on Zimbabwe Mining Development Corp. while U.S. keeps diamond ban.
RAPI for 1ct. -0.3% in September, -2.6% in 3Q. Rapaport Melee Index -6% in 3Q.

October

• Chinese gold rush continues through National Day Golden Week.
• U.S. consumer confidence drops during government shutdown over Affordable Care Act disagreement.
• Polished demand very weak for this time of the year.
• Reports of possible hike in India’s polished diamond duty from 2% to 5% dampens Diwali mood.
Indian cutters reduce production by 30% to 50% and take early Diwali vacation, as trade organizations discourage purchases of high priced rough.
• De Beers under pressure as frustrated sightholders refuse 15% of estimated $570M. sight with depressed secondary market. De Beers drops some prices but boxes still trading at discounts.
• Special stones and colored diamonds hot:
   o Strong demand, high prices at Argyle pink tender.
   o Sotheby’s HK sells oval, 118.28ct., D, FL diamond sold for $30.1M ($254K/ct.).
  o Christie’s NY sells rectangular‐cut, 8.77ct, fancy intense pink, VVS1 ring fetching $6.3M ($721K/ct).
ALROSA valued at $8.1B in Moscow share listing.
• Persistent reports that large amounts of undisclosed synthetic lab-grown diamonds are being mixed with natural diamonds in parcels of melee and pointers.
RAPI for 1 ct. -1.8% in October.

November

• De Beers moves international sales to Botswana, reduces prices 3% to 5% at $480M sight. Rough trading improves.
• EFD drops non-profitable sightholder status. Exelco sells Botswana factory to Signet Jewelers.
• U.S. trading extremely price point conscious with strong demand for commercial qualities ahead of Thanksgiving. Trading volume below previous years.
• NY/Israel diamond week helps improve market sentiment.
• Big stones cooling off in China as Chairman Xi Jinping implements anti-corruption campaign.
• Indian market closed for Diwali with reports of weak gold and diamond jewelry sales.
• Shortages of certified diamonds, due to GIA delays, are supporting prices.
• Sotheby’s Geneva sells oval, 59.6ct., fancy vivid pink, IF diamond sold for $83M ($1.4M/ct.).
Christie’s Geneva sells pear-shape, 14.82ct., fancy vivid orange, VS1 diamond sold for $36M ($2.4M/ct.).
RAPI for 1ct. -0.1% in November.

December

• Holiday demand supports diamond prices but trading levels disappoint.
• U.S. jewelers discount heavily and consumers increase purchases through mobile devices.
• Very strong demand for GIA dossiers. Selective demand improving for 1-2 ct. collection clean (D-H, IF-VVS) certs.
Christie’s NY sells rectangular-cut, 52.58ct, D, IF Golconda diamond for $10.9M ($207,600/ct.).
• Trading outlook shifts to the Far East ahead of the Chinese New Year.
• Rough market improves with increased trading activity as sightholders take full allocations at $580M De Beers sight.
• De Beers introduces forward contracts at auction sales.
• Antwerp sells 279,723 cts. Marange rough for $10.7M ($38/ct.).
• Banks tightening credit policy in 2014 with ABN Amro reducing credit facility for rough purchases from 100% to 70%.
• Courts order Tiffany to pay Swatch $450M in contract dispute.
Antwerp Diamond Bank sold to Yinren Group.
• RAPI for 1ct. expected to be approximately +0.3% in December.

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.diamonds.net/weeklyreport/ or contact your local Rapaport office.


Copyright © 2013 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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