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Rapaport TradeWire August 8, 2014
Aug 7, 2014 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
Aug. 8, 2014
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TRADE NOTICE: The Rapaport Price List is now based on the new “Rapaport Specification A” as modified and published August 8, 2014. Full details of all new specifications are at diamonds.net/rapspec. The new specifications have been significantly modified. Comments from the trade should be emailed to rapspec@diamonds.net. Effective today the Rapaport Price List excludes price information for Marange and green-tinted diamonds. RapNet members will be required to remove all non-fancy color, green-tinted diamonds from RapNet regardless of origin. Members that list green-tinted or Marange diamonds on RapNet will be subject to suspension and publication.
Rounds: New Rapaport Diamond Specifications published with modifications following comments from trade. Diamond trading quiet with Belgian and Israeli dealers taking August vacation. U.S. market positive with moderate expectations for India Diamond Week in New York. Polished buyers avoiding large inventory purchases before Sept. HK show. July RapNet Diamond Index (RAPI) for 1ct. -2.4%. Rough trading stable but manufacturer margins tight due to high rough prices. Rio Tinto’s 1H diamond revenue +7% to $431M, diamond earnings +260% to $18M. Titan Company 1Q sales -8% to $466M, profit -3% to $29M. Blue Nile 2Q sales -1% to $107M, profit -2% to $2.2M. U.S. June jewelry sales +3% to estimated $4.9B. U.S. June polished imports +4% to $1.6B, polished exports +15% to $2.9B.
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RapNet Data: Aug. 7
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| Diamonds |
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1,205,088 |
| Value |
$7,558,093,800 |
| Carats |
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1,316,409 |
| Average Discount |
-27.01% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Hopefully, still above-average consumer confidence across Europe, modestly improving labor markets in most countries and very low consumer price inflation will provide support to consumer spending over the coming months and help the euro-zone economic recovery to gradually gain traction following a largely disappointing first half of the year.
Howard Archer | IHS Global Insight
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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 and Mumbai. View jobs now.
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INDUSTRY
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Polished Prices Decline in July
The RapNet Diamond Index (RAPI) for 1-carat certified polished diamonds fell 2.4% during the month of July, while RAPI for 0.30-carat diamonds declined 1.3%, RAPI for 0.50-carat diamonds rose 0.3% and RAPI for 3-carat diamonds fell 0.5%. Diamond manufacturing margins remained under pressure as polished trading was seasonably quiet, while rough prices stayed high.
Nonetheless, there is steady U.S. and Far East demand for below 1-carat, G-M, SI-I2, commercial-quality diamonds. Demand for 0.30- to 0.50-carat, G-M, VS2-I2 diamonds remains strong with reported shortages in the market. Many New York and Antwerp-based dealers took their summer vacations during the month, which further reduced trading volume. Some Indian cutters reduced 1-carat and larger prices due to weak demand, oversupply and to boost cash flow. Rough trading was robust and prices rose approximately 2% with goods selling for mid-single-digit premiums on the secondary market. Manufacturers are buying rough in order to have their polished inventories ready before the Diwali break.
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RETAIL & WHOLESALE
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U.S. Jewelry & Watch Sales +3%
U.S. jewelry and watch sales together rose 3.4% year on year in June, according to preliminary government calculations. Jewelry sales rose 3.3% to $4.886 billion, while watch sales rose 3.6% to $666.3 million, according to Rapaport News calculations.
Jewelry sales for the first six months of 2013 have risen 2.3% year on year to $30.323 billion, while watch sales rose 1.4% to $4.134 billion. The rate of growth was revised lower for each of the past six months. In addition, the rate of growth for the jewelry and watch sector in 2012 was revised lower, but still increased 5%, with jewelry sales of $64.762 billion and watch sales of $8.831 billion. In 2013, the sector experienced a 5.7% increase with jewelry sales of $68.428 billion and watch sales of $9.331 billion, according to Rapaport's calculations.
Sterne Agee's analyst Ike Boruchow observed that specialty retailers experienced choppy sales trends in the month of June in large part due to uneven product category sales coupled with a consumer appetite that lacks "must have" items. Boruchow also hinted that margins may have held steady since Signet Jeweler's discounting in June was restrained, while Fossil stores did not repeat a coupon promotion that took place a year ago.
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Titan's Profit -3%
Titan Company Ltd., the owners of the Tanishq jewelry brand in India, reported that sales declined 7.6% year on year to $466.4 million (INR 28.54 billion) in the first quarter that ended on June 30. Profit fell 3% to $29 million. The company anticipated lower sales as a result of difficult comparisons given such an unprecedented first quarter one year earlier, at which time Titan's jewelry sales surged 47% as a result of lower gold prices.
Titan's jewelry sales fell 10% in the first quarter to $380 million, while watch sales recorded a 10% increase to $71.9 million. The company plans to stimulate demand for all its product categories through innovative advertising campaigns and new product launches.
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Blue Nile's Profit -2%
Blue Nile's sales declined 1.3% year on year to $106.6 million for the second quarter that ended on June 29. The company's cost of sales fell 1.7% to $86.4 million. Profit fell 1.6% to $2.2 million or 18 cents per share. Engagement jewelry sales in the U.S. fell 4.6% to $60.9 million, while non-engagement sales rose 2.6% to $27.7 million. International sales rose 4.8% to $18 million, while excluding the impact from foreign exchange-rates, the increase was 6.7%. The value of inventory fell nearly 7% year on year to $32.1 million.
Harvey Kanter, Blue Nile's CEO, told investors that a weak diamond price environment in the second quarter materially impacted performance, resulting in price changes. "With these changes we are seeing a return to growth, and when diamond prices normalize, we expect to see even greater benefits from ongoing investments we're making in the user experience," he said.
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Charles & Colvard's Loss Widens
Charles & Colvard's revenue rose 20.4% year on year to $7.84 million for the second quarter that ended on June 30. However, costs and expenses jumped 34.1% to $9.88 million, driving a quarterly loss higher to $6.19 million compared with a loss of $491,585 one year earlier. During the period, U.S. sales increased 35% to $7.3 million and international sales fell 50% to almost $600,000. Loose jewel sales, including Forever Brilliant® moissanite, dropped 2% to $4 million; however, finished jewelry sales surged 57% to $3.8 million. Revenue from Charles & Colvard's direct-to-consumer businesses, Moissanite.com and Lulu Avenue®, increased 59%.
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TBZ's Profit Falls
Tribhovandas Bhimji Zaveri (TBZ) Ltd. reported that revenue dropped 18.9% year on year to $70.4 million (INR 4.32 billion) in the first quarter that ended on June 30. The company held expenses down by 15% to $68.6 million, however, profit plunged 97.4% to $84,974. TBZ stated that it successfully steered through a difficult quarter. The company hopes to stimulate consumer demand during the current fiscal year through innovative strategies. TBZ will also slow its store expansion to remain focused on improving performance at existing stores.
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Gitanjali to Raise Expansion Funding
Gitanjali Gems Ltd. is seeking shareholder approval to raise up to $28.7 million (INR 1.75 billion) through the issue of convertible warrants. The company intends to fund global expansion with the equity. The company also was looking for approval to borrow up to $1.64 billion. Gitanjali's jewelry brands include Gili, Naksharta, D'Damas and Asmi among others. The company has over 4,000 points of sale in India and also operates stores in the U.S, U.K., China, Japan, and Europe and across southeastern Asia.
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Damiani, Rocca Merge Operations
Damiani S.p.A.'s board of directors approved merging Damiani and the group's subsidiary Rocca in an effort to increase synergies and corporate functions between the two companies. The merger will not lead to an increase in capital, nor is it subject to regulatory procedures since both companies are wholly owned without any significant interest from other related parties. Damiani S.p.A. was founded in Valenza in 1924 and is now managed by the founder's family third generation, who lead the production and sale of fine jewelry and watches. Rocca 1794 is a jewelry chain with a history dating back more than 200 years and offers a brand of jewelry and watches.
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Walmart Chief Outlines Growth Initiatives
Walmart Inc.'s CEO, David Cheesewright, outlined plans to spark competitive growth during an interview with The Wall Street Journal. In brief, he said 80% of retail growth will be coming from outside the U.S. in the next decade and in order to position the retailer ahead of time, Walmart will target opportunities in China, turn around operations in Brazil, rejuvenate Mexico and drive greater ecommerce presence globally.
Online sales are an incredibly important revenue channel as is a fully integrated omnichannel strategy that integrates with the company's 6,100 physical stores. Walmart aims to allow people access to any product from anywhere, he told the newspaper. Still, while various country regulatory issues sometimes hold back growth initiatives for physical stores, he said the key to overcoming these issues is to deal with mistakes immediately. There have been missteps in China and Walmart shelved plans to open stores in India. Now, Walmart is focused on business-to-business in India as a first step. Shares in Walmart have been trading in a $72 to $81 range in the past 52 weeks but are running about 6% lower from one year ago.
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GENERAL
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U.S. Jewelry Crime Incidents -13%
Jewelers’ Security Alliance (JSA) reported that the total number of crimes against the U.S. industry decreased 13.4% year on year to 740 for the first half of 2014. Total dollar losses were 3.8% lower at $34 million. The bright spot was that during the first six months, the number of arrests of jewelry criminals soared 77% to 374, largely as a result of authorities nabbing large organized jewelry crime gangs. John Kennedy, the president of JSA, observed that terrific investigative work by the FBI and local law enforcement agencies across the U.S. was a principal driver of crime reduction. More arrests have also been possible through information sharing, better surveillance photos and videos and detailed leads provided by jewelers, he said.
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PDE's Board Adds Four Members
The Panama Diamond Exchange (PDE) appointed jewelry designer and businessman Roberto Coin, IDMA's president, Maxim Shkadov, IDE's president, Shmuel Schnitzer, and New York Diamond Dealers Club president, Reuven Kaufman, to its board of directors. Eli Izhakoff, the founding chairman of the PDE, described each of the new board members as a wealth of knowledge about the international diamond and jewelry markets. The four join existing board members Ernest Blom, WFDB's president, Gaetano Cavalieri, CIBJO's president, and Avi Paz, WFDB honorary life president. PDE anticipates naming four additional directors in due course.
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Martin Joins GIA
The Gemological Institute of America (GIA) appointed Anna Martin, previously the managing director and head of global marketing of diamonds and jewelry at Standard Chartered Bank, to the position of senior vice president of global development. Martin will broaden and deepen GIA’s relationships with clients and stakeholders and overseeing the Institute’s global beneficiation efforts. In addition, Rohit Tandon was appointed as its chief human resources officer and GIA promoted chief learning officer Bev Hori, chief marketing officer Kathryn Kimmel and chief financial officer David Tearle to senior vice presidents. Corporate Counsel Jennifer Wilson was promoted to vice president.
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JA Adds Two Board Members
Jewelers of America (JA) elected Karen Goracke of Borsheims Fine Jewelry and Gifts and Mercedes Abramo of Cartier North America to serve on the board of directors through 2017. Goracke was appointed as president of the retailer by Warren Buffett in 2013; she is also active with the Jewelers Vigilance Committee (JVC), Jewelers for Children (JFC) and the Women’s Jewelry Association (WJA). Abramo oversees the strategy and operations for Cartier in North America as president and CEO; prior to joining Cartier, she held management positions with Tiffany & Co., Ritz Carlton Hotels and Loews Miami Beach.
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MINING
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Rio Tinto Diamonds' Revenue +7%
Rio Tinto's diamond division revenue rose 7% year on year to $431 million during the first half of 2014. Growth was driven by an 8% increase in industry diamond prices, the company explained. Rio Tinto recorded an operating profit of $18 million from its diamond business, compared with an operating profit of $5 million one year ago.
Diamond production rose 2% to 7.482 million across its three mines. Rio Tinto’s capital expenditures on the diamond business fell 55% to $82 million, in line with the company's overall strategy to reduce its costs.
Strong demand is expected, especially from India and China, as disposable consumer income rises, leading to higher consumer luxury demand, according to the company's assessment.
Rio Tinto Group’s consolidated sales revenue fell 1% to $24.33 billion during the period, while profit more than doubled to $4.285 billion.
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Gem Diamonds Recovers 198-Ct. Diamond
Gem Diamonds reported that it recovered a 198-carat, type IIa diamond from the Letšeng mine in Lesotho at the end of July 2014.
The company explained that the diamond, which is exceptional white and displays no florescence, is expected to be sold before the end of the year.
Clifford Elphick, the CEO of Gem Diamonds, explained that this recent recovery supports Letšeng mine's reputation as an important source of exceptional-quality large diamonds.
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Faraday's Sample Grade Impresses Evans
Kennady Diamonds Inc. reported that diamond recovery results from its Faraday 2014 spring drilling program at Kennady North, located in Canada's Northwest Territories, resulted in 5.10 carats per tonne of ore. Company president Patrick Evans stated that the grade was outstanding and amongst the highest diamond sample grades recorded in Canada. "This result confirms that the Faraday kimberlite has the potential to host a high-grade diamond resource," he said.
Approximately 933 kilograms of kimberlite from Faraday was processed at the Geoanalytical Laboratories Diamond Services at the Saskatchewan Research Council. Nearly all of the commercial-size diamonds were described as transparent and white/colorless or off-white. Approximately 75% have either no or only minor inclusions, according to the company.
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Zimbabwe Seeks Payment at Point of Sale
Zimbabwe's Mines and Mining Development Minister Walter Chidhakwa told a parliamentary portfolio committee that the government will now collect its share of diamond revenue at the point of sale rather than wait for its mining partners to remit dividends, according to The Herald newspaper. Zimbabwe's treasury has long stated that country's share of diamond revenue failed to materialize. The Zimbabwe Mining Development Corporation (ZMDC) is the government's mining arm that holds a 50% stake in each of the firms mining diamonds across the Marange, including Mbada Diamonds, Anjin Investments, Diamond Mining Company, Jinan and Kusena. The government owns Marange Resources outright. ZMDC, Mbada Diamonds and Marange Resources are on the U.S. list of sanctioned companies.
In addition, Chidhakwa said the Minerals Marketing Corporation of Zimbabwe, which is also on the U.S. sanctions list, is no longer relevant in marketing minerals. The government claimed that diamond revenue in 2013 fell 38% year on year to $466.9 million. However, according to the Kimberley Process Certification Scheme, Zimbabwe’s production value declined 14% to $538.5 million as volume fell 14% to 10.41 million carats and the average price dropped 3% to $51.72 per carat.
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Namdeb Strike Enters Sixth Day
Nearly a week has passed with no agreement to end the Namdeb workers strike in Namibia. Namdeb offered a 10% salary increase, a 14% housing allowance increase and a 70/30 increase on medical aid. While the salary increases were in line with demands, the Mineworkers Union of Namibia (MUN) also sought an 80/20 medical increase and educational fee allowances. About 740 workers are on strike, posing a threat to the mine's emergency services that are crucial to maintaining seawalls and mining de-watering. Lawyers for Namdeb threatened workers with court action if a deal was not reached immediately to end the strike.
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STATS
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USA
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June $Mil. |
%Chng. |
YTD $Mil. |
%Chng. |
| Polished imports |
$1,619 |
4% |
$12,212 |
5% |
| Polished exports |
$2,941 |
26% |
$11,490 |
14% |
| Net imports |
($1,321) |
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$723 |
-51% |
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| Rough imports |
$36 |
80% |
$366 |
73% |
| Rough exports |
$14 |
-48% |
$249 |
82% |
| Net imports |
$22 |
297% |
$116 |
57% |
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| Net diamond account |
($1,299) |
44% |
$839 |
-46% |
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ECONWATCH
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Diamond Industry Stock Report
Gold gained ground on safe haven buying after Russia sanctioned western imports and the U.S. weighed military action on Iraq. U.S. retail shares mainly lower, led by Blue Nile (-5%). European shares all lower, led by Damiani (-5%). Indian shares mixed with Classic Diamond (+3%) and Winsome (-3%) defining the trading range with the exception of C. Mahendra (-51%). Diamond miners were mixed as gains were led by Kennady (+9%) and losses led by Rockwell (-11%). View the extended stock report.
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Aug. 7 |
July 30 |
Chng. |
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| $1 = Euro |
0.748 |
0.746 |
0.002 |
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| $1 = Rupee |
61.52 |
60.52 |
1.0 |
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| $1 = Israel Shekel |
3.48 |
3.43 |
0.05 |
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| $1 = Rand |
10.77 |
10.72 |
0.05 |
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| $1 = Canadian Dollar |
1.09 |
1.09 |
0.00 |
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| Precious Metals |
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| Gold |
$1,311.40 |
$1,281.80 |
$29.60 |
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| Platinum |
$1,473.00 |
$1,456.00 |
$17.00 |
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| Stock Indexes |
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Chng. |
| BSE |
25,589.01 |
25,894.97 |
-305.96 |
-1.2% |
| Dow Jones |
16,368.27 |
16,563.30 |
-195.03 |
-1.2% |
| FTSE |
6,597.37 |
6,730.11 |
-132.74 |
-2.0% |
| Hang Seng |
24,387.56 |
24,756.86 |
-369.30 |
-1.5% |
| S&P 500 |
1,909.57 |
1,930.67 |
-21.10 |
-1.1% |
| Yahoo! Jewelry |
950.58 |
952.34 |
-1.76 |
-0.2% |
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INDIA MARKET REPORT
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Polished and Rough Trading Activity
Local activity is relatively slow and the general mood is cautious and price sensitive, especially as the liquidity crunch continues. Read the full report.
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