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Rapaport Weekly Market Comment July 31, 2015

Rough sales and diamond manufacturing activity plummeting. Shortages holding up prices for large stones but some very good deals available. Sizes below one carat under severe pressure. “New York Jewelry Week” weak. Low expectations for upcoming India and HK shows as Chinese stock market bubble bursts. Rough prices unsustainable and likely to fall significantly. De Beers allows sightholders to defer 75% of their August purchases, 1H rough sales -21% to $2.7B, price index -8%, earnings -23% to $360M. Petra Diamonds FY revenue -10% to $425M. Letšeng 1H sales -28% to $106M, average price -18% to $2,264/ct. LVMH 1H watch & jewelry sales +23% to $1.7B, operating profit +91% to $227M.

RapNet Data: July 30
Diamonds   1,362,320
Value $8,282,699,804
Carats   1,362,909
Average Discount -26.76%

RAPI Chart
The RapNet Diamond Index (RAPI) has been revised to reflect the average price of the 10 best priced diamonds in each category.

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  Consumers are clearly losing confidence in a more robust outlook for the U.S. economy amid growing concerns over stagnant business conditions, fewer jobs, and declining income.

Lindsey Piegza | Stifel Financial

De Beers Lowers Production Guidance

De Beers revised its full-year production guidance downward to between 29 million carats and 31 million carats from its previous forecast of 30 million to 32 million carats, as its first-half underlying earnings fell 23 percent  year on year to $360 million, according to parent company Anglo American. Bruce Cleaver, head of strategic development, told Rapaport News that the decrease would probably be implemented across the group’s operations, whereas first-half production was primarily reduced at De Beers tailings operations.

Cleaver added that if consumer demand remains stable, De Beers expects some improvement in polished demand in the second half, ahead of Christmas. Sightholders rejected up to 65 percent of the goods offered at the company’s July sight, which closed with an estimated value of $200 million. De Beers rough diamond price index has declined by 8 percent  since the beginning of the year, although the average price achieved increased 7 percent  year on year to $206 per carat.

Cleaver declined to comment on the company’s supply and price considerations for future sights.

ALROSA Set for Production Boost

ALROSA has shifted mining operations at the iconic Udachnaya mine from open-pit to underground to eventually yield 5 million carats a year. The company said it completed open-pit mining at the Udachnaya pipe earlier this month, having recovered 2.67 million carats of rough diamonds in the first half. The underground operation, commissioned in June 2014, is expected to produce approximately 780,000 carats in 2015 and 5 million carats by 2019.

The Udachny division, one of five mining units at ALROSA, saw production increase 30 percent  year on year to 2.8 million carats during the first half, with the bulk coming from the Udachnaya open pit. The mine is central to ALROSA’s goal of reaching annual production of 41 million carats.

Russia Could Set Up Diamond Exchange

Russia could establish its own rough diamond exchange in the city of Vladivostok in the Far East Federal District, Yury Trutnev, Deputy Prime Minister and presidential envoy in Russia's Far East Federal District, told TASS.

“We will be able to talk about a real project when I receive the economic data and know who potential market players are,” he said. “We need to find the people who understand this market. This is a rather narrow circle of people. There are few centers of global sales of diamonds; what if we tell them that we want to sell diamonds in Vladivostok?”

He also said that it is important to develop the diamond-cutting business in Russia.

Swiss Watch Exports Rise to $2B

Swiss watch exports increased 3 percent year on year in June to $2.02 billion (CHF 1.93 billion), according to the Federation of the Swiss Watch Industry. Exports of precious metal wristwatches grew 6 percent to $738.9 million (CHF 711.3 million), despite a 6 percent drop in volume to 43,700 units. Exports of wristwatches made from other metals increased 24 percent to $113.4 million (CHF 109.2 million) and rose 11 percent by volume to 286,500 units.

The increase in wristwatch exports occurred at both ends of the price spectrum. Exports for watches priced higher than $3,144 rose 5 percent by value during the month, despite the volume of units exported declining by 1 percent. Meanwhile, exports of watches priced under $210 rose 1 percent by value and 8 percent by volume.

IndusInd Bank Acquires Diamond Loan Portfolio Held By RBS

IndusInd Bank announced Monday that it had completed its acquisition of the diamond and jewelry financing business of Royal Bank of Scotland (RBS) in India. RBS managed a diamond and jewelry business loan portfolio valued at $640 million (INR 41 billion).

As of June 30, 2015 IndusInd Bank had 811 branches across India and representative offices in London, Dubai and Abu Dhabi.

The deal was originally announced on April 10 this year.

The RBS diamond and jewelry financing business in India was originally part of diamond lending bank ABN AMRO, which was acquired by a consortium of banks led by RBS in 2007. ABN AMRO’s India operation were rebranded under the RBS name in 2010.

Rajesh Exports Acquires Precious Metals Refiner Valcambi For $400M

Rajesh Exports, an India-based jewelry manufacturer, acquired Valcambi, the world’s largest precious metal refining company for $400 million in cash. Rajesh Exports purchased the Swiss-based refiner from gold and copper mining giant Newmont Mining Corp. and a group of Swiss investors.

Valcambi processed on average 945 tons of gold and 325 tons of silver per year over the past three years, Rajesh Exports noted in a statement announcing the deal.

“On a theoretical basis, Valcambi is capable of supplying the entire gold requirement of India,” said Rajesh Mehta, the chairman of Rajesh Exports. “This acquisition will add significantly to the revenues and profitability of the Rajesh Exports group during the coming years.”

Michael Mesaric, the CEO of Valcambi, and his entire senior management team have agreed to join Rajesh Exports as part of the acquisition to ensure a smooth transition in ownership and the success of future expansion plans, the company said.

Diamond Industry Figures Signal Weak India Trading in July: Quick Take

Indian diamond industry leaders are predicting weak diamond trade figures for July this year, The Economic Times reported on Tuesday.

India's diamond exports will likely decline between 40 percent and 50 percent of average during July, Vipul Shah, the chairman of the Gem & Jewellery Export Promotion Council, told the newspaper.

Imports of rough diamonds to India have fallen 20 percent in July, estimated Ashok Gajera, the managing director of diamond manufacturer and exporter Laxmi Diamond.

Kering Group 1H Sales +17%, But Luxury Sales Flat

Luxury retailer Kering reported that sales increased 17 percent year on year to $6.1 billion (EUR 5.5 billion) during the first six months of 2015. The group said sales were boosted by a weaker euro,and solid growth in Western Europe and Japan. Sales in emerging markets were stable. The company noted that sales grew 4 percent during the period on a comparable-store basis, excluding for changes in group structure, store count and foreign currency exchange rates.

Kering’s brands include Gucci, Yves Saint Laurent and Boucheron. Despite increased sales, recurring operating income within the luxury segment, which includes jewelry sales, was flat at $892 million.

The group’s share of net income more than doubled to $468.2 million . However, net income from recurring items fell 13 percent to $541.3 million.

Carl F. Bucherer Unveils Patravi TravelTec II Timepiece

Carl F. Bucherer, a Swiss watchmaker and retailer, unveiled its Patravi TravelTec II timepiece, which combines a triple-time zone display and chronograph in a compact case.The second edition watch features a stainless-steel case with a side-mounted sapphire glass window, which allows the TravelTec II to simultaneously display three time zones alongside a chronograph.

Adorning the case back is a time-zone sun, which displays the hour differences of 24 cities, with Lucerne – the home base of Carl F. Bucherer – accentuated as a black engraving.

Founded in 1888, the Bucherer Group is still a family-run business, managed by the owner and chairman of the board, Jörg G. Bucherer. The group manufacturers its watches in its workshops in Switzerland and maintains a worldwide chain of stores.

Chow Tai Fook To Bring High Rollers to Brisbane Casino: Quick Take

Chow Tai Fook Jewellery Group will promote a new casino resort being built in downtown Brisbane, Australia, to members of its customer loyalty program, Bloomberg reported on Monday.

Sister company Chow Tai Took Enterprises is partnering with with property developer Far East Consortium International Echo and Entertainment Group to build a 1,110 room hotel and casino along the shores of the Brisbane river by 2022.

Chow Tai Fook Jewellery Group maintains a loyalty program for customers who spend more than $129,000 (HKD 1 million) per year at its stores. The program offers members entry to special events like yacht cruises, launches for new luxury car models and luxury food tastings.

The casino developers are trying ensure a steady supply of high-roller gamblers from China to visit the resort when it opens.

Matt Bekier, Echo’s CEO, told Bloomberg that these “very, very serious VIPs” are people who bet more than $2,000 per hour in high-stakes games of baccarat. He estimated the total number of such people who gamble regularly as between 1,500 and 2,000 players.

U.S. Consumer Confidence Declines

The Conference Board Consumer Confidence Index, which had improved to 99.8 in June, declined in July. The Index now stands at 90.9 (1985=100), the lowest reading to be posted since September 2014.
Consumers’ optimism about the short-term outlook decreased sharply in July. The percentage of consumers expecting business conditions to improve over the next six months declined from 17.9 percent to 14.7 percent, while those expecting business conditions to worsen rose slightly from 10.2 percent to 10.7 percent.

As consumers lose confidence, they are more likely to tighten their purse strings, further restraining household spending, said Lindsey M. Piegza, chief economist at investment house Stifel.

Jewelers of America Elects Berg Chairman

Jewelers of America (JA) has elected Ryan Berg, the market president of Lee Michaels Fine Jewelry in San Antonio, as JA’s new board chairman, succeeding Bill Farmer Jr., a partner in Farmer’s Jewelry.

As chairman, Berg will lead an executive committee comprised of the following elected officers: chair-elect John Henne of Henne Jewelers; vice chair Mark Light of Sterling Jewelers; vice chair Holly Wesche of Wesche Jewelers; treasurer Coleman Clark of B.C. Clark Jewelers; and secretary Cathy Tivol of Tivol, Inc.

Tiffany & Co. Outlines Sustainability Efforts

Tiffany & Co. released its fifth annual Sustainability Report, now available online at, which outlines Tiffany's sustainability initiatives.

The report provides an overview of the company's efforts in 2014 around its most important environmental and social challenges, with a focus on responsible mining and sourcing of raw materials, ranging from diamonds and gold to packaging.

Vaibhav Global's 1Q Revenue -8%, Profit -67%

Vaibhav Global Ltd., the parent company of The Liquidation Channel in the U.S. and Canada and The Jewellery Channel in the U.K., reported that total revenue fell 8.4 percent year on year to $43.8 million (Rs. 281 crore) for the first quarter that ended on June 30. Retail sales declined 8.3 percent to $43.1 million (Rs. 276 crore).The company's expenses fell 3.7 percent to $42 million (Rs. 269 crore) and profit plummeted 66.5 percent to $1.1 million (Rs. 7 crore), due in part to weaker revenue coupled with higher taxes and depreciation costs.

The company said the volume of units sold on TV shopping channels rose 5 percent to 2.1 million units. The average selling price per item sold on TV fell to $22 compared with $25 one year earlier, while the average price was stable for ecommerce sales at $14 per unit.

At the close of the quarter, the company recorded it was debt free. Sunil Agrawal, the chairman of Vaibhav Global, said the company is continuing to strengthen the customer experience, having recently launched the Hybris (by SAP) platform for mobile ecommerce.

"The diversification into home and other lifestyle products has drawn a positive response from customers. We believe these substantial initiatives undertaken by the company, and several other in the pipeline, would allow us to regain volume momentum and deepen shopper engagement with our base of 1.7 million TV and web customers," he said.

LVMH's Jewelry Division Operating Profit +91% to $227M

LVMH reported that revenue rose 19 percent year on year to $18.5 billion (EUR 16.71 billion) in the first half of 2015. However, organic growth, using a comparable-structure and constant-exchange-rates, rose only 6 percent, meaning the exchange-rate impact added 13 percent to the total.Group profit improved 5 percent to $1.8 billion (EUR 1.58 billion).

Organic growth across the luxury goods retailer's various divisions was strongest for its watches and jewelry segment, rising 10 percent year on year. In total, revenue from the division rose 23 percent to $1.7 billion (EUR 1.6 billion). Operating profit from watches and jewelry division jumped 91 percent to $227 million (EUR 205 million).

LVMH stated that there was strong growth from jewelry retailers but cautious purchasing behavior at multi-brand watch retailers. Bulgari's results were driven by the success of jewelry lines and a new watch for women, the Lvcea. Hublot experienced improved sales, while TAG Heuer continued to refocus on its core offering, according to the company. LVMH has partnered with Google and Intel for a TAG Heuersmartwatch.

Bernard Arnault, the chairman and CEO of LVMH, said,“The excellent results of the first half are witness to the efficiency of our strategy, which relies upon the strength of our brands and a very entrepreneurial style of management. Building on the first half performances, we face the second half of the year with confidence and count on the quality of our products and the talent of our teams to further strengthen our leadership in the world of high-quality products.”

Signet Promotes Sterling Jewelers Veterans

Signet Jewelers has named Ed Hrabak as its chief operating officer and George Murray as its chief marketing and merchandising officer.

Hrabak previously served as president of Signet's Sterling Jewelers division. He joined Sterling Jewelers in 1978 as a merchandise buyer.

Murray was president of Signet's Zale division following Signet's acquisition of Zale Corporation in May 2014. He has held a number of management positions at Sterling Jewelers since joining the company in 1992.

U.K. Bans Three Directors

The Insolvency Service (TIS) of the U.K. disqualified the directors of Cohen Stones Ltd., Imperial Assets Solutions Ltd. and Tudor Global Ltd. from holding any "director" position at any firm for more than a decade, after investigators determined that the men misled diamond investors and then filed voluntary insolvency.

The TIS said that the three directors operated in a similar fashion: selling diamonds to customers with an extraordinary markup, claiming the stones would increase in value annually and recording a profit before filing for bankruptcy. Each of the firms were said to have stored the diamonds in a free trade zone, which required their clients to pay a 20 percent value-added tax on the purchase price to have the stones released. TIS estimated that the customers, many of whom were elderly, lost more than $5.4 million (GBP 3.5 million).

Indian Diamond Labs Receive Customs-Duty Exemption

Cut and polished diamonds sent to three diamond grading labs in India will no longer be subject to customs duty, following a decision published by India’s Central Board of Excise and Customs this week, The Hindu reported on Wednesday

The decision applies to all diamonds sent to the Gemological Institute of America (GIA) location in Mumbai, the Indian Diamond Institute in Surat and the International Institute of Diamond Grading and Research India in Surat. The exemption is expected to make these labs competitive locations for certifying polished diamonds manufactured or traded in other countries.

To qualify for a customs duty exemption, polished diamonds shipped from abroad will have to be certified and re-exported from India within three months.

India Mobile Lab to Verify Diamonds

Indian jewelry retailer Kirtilals has opened a portable, in-store laboratory to enable clients to check their diamonds’ cut, properties and value, The Hindu newspaper reported.

Equipment for the laboratory, set up at a cost of $93,600 (INR 6 million), was sourced from De Beers, according to the report. The portable lab has an optical microscope, a Diamond Analyzer to check whether the stones are authentic or lab-grown, a Sarine machine to identify defects in the diamond cutting and symmetry, and fluorescence to test the stone’s light.

Unique Volcano Diamonds Found in Russia

Russian scientists have discovered a new type of diamond in the frozen lava of the Tolbachik volcano in Russia’s Kamchatka Peninsula, according to a statement from the Russian Science Ministry.

The diamonds were formed by volcanic gases under tremendous pressure and were crystallized under the influence of electrical current discharged by lightning, RT News reported, citing the ministry’s statement.

The Russia-based news outlet also reported that while the gems look similar to synthetically produced diamonds, they differ with respect to certain geological and mineralogical characteristics.

Jewelers Mutual Insurance Company named to 2015 Ward’s 50

Jewelers Mutual Insurance Company has been named to the 2015 list of Ward's 50 top performing insurance companies for the fifth consecutive year.

The Ward's 50® award recognizes outstanding financial results in the areas of safety, consistency and performance over a five-year period from 2010 to 2014. To develop its annual list of the top 50 performing insurance companies, Ward Group analyzes the financial performance of nearly 3,000 property-casualty insurance companies and 800 life-health insurance companies domiciled in the U.S. and identifies the top performers in each segment based on objective data and subjective quality measures. Each company has passed all safety and consistency screens and achieved superior performance over the five years analyzed.

"Ward's 50 is an incredible industry benchmark and it's a tremendous achievement for Jewelers Mutual to be named to this highly competitive list for five consecutive years," said Scott Murphy, the president and CEO of Jewelers Mutual.

The list of Ward's 50® top performing insurance companies was released last week by Ward Group, an Aon Hewitt company and the leading provider of operational and compensation benchmarking and best practices services for insurance companies. Aon Hewitt is the global talent, retirement and health solutions business of Aon plc.

This is the 25th consecutive year Ward Group has conducted the analysis. The Ward Group noted in its release that the Ward's 50 property-casualty group of insurance companies produced a 11 percent statutory return on average equity from 2010 to 2014 compared to 8 percent for the property-casualty industry overall.

Lucapa Raises $3M for Lulo Mine

Lucapa Diamond Company, explorer and developer of the Lulo diamond mine in Angola, announced that it had raised $2.9 million (AUD 4 million) to fund modifications to the alluvial mine plant. The company raised the funds via the placement of 22.2 million ordinary shares at an issue price of 13 cents (AUD 0.18) per share. The issue was led by mining company financier Far East Capital Limited, according to a statement filed with the Australian Stock Exchange (ASX).

Management noted that Lucapa achieved its first positive net operating cash flow for the quarter that ended on June 30, despite the company’s decision to postpone the fifth sale of Lulo diamonds, which had been scheduled for June, due to weak rough diamond trading conditions.

Lucapa said that it currently holds 1,600 carats of rough diamonds in inventory and planned to conduct its fifth rough sale of the year in late August or early September.

Petra Diamonds’ Revenue -10%

Petra Diamonds' revenue declined 10 percent year on year to $425 million for the fiscal year that ended on June 30. Rough diamond sales increased 1 percent by volume to 3.169 million carats during the year. The average price of diamonds sold declined 10 percent on a like-for-like basis.

The miner reported that its rough diamond production rose 2 percent to 3.2 million carats during the fiscal year.

Management anticipates that production will reach between 3.3 million and 3.4 million carats in fiscal 2016, which represents an increase of between 3 percent and 4 percent against the previous year and keeps it on track to achieve its goal of producing 5 million carats per year by the end of its fiscal 2019.

Gem Diamonds' 1H Revenue Falls 28%

Gem Diamonds’ revenue declined 28 percent year on year to $106.3 million in the first half that ended June 30 2015, hurt by reduced production and lower prices received for commercial quality rough diamonds. The average price received for diamonds sold declined 18 percent year on year to $2,264 per carat.

The amount of rough diamonds sold from Letšeng declined 13 percent to 46,961 carats during the half. Similarly, production at Letšeng declined 9 percent to 50,019 carats, which the company attributed to processing less ore from the mine’s higher grade Satellite pipe and a 19-day shutdown to complete a plant upgrade. The company noted that construction of a coarse recovery plant at the mine was completed on schedule and within a budget of US$ 11.7 million by the end of the second quarter.

Zimbabwe to Consolidate Marange Mining Companies

The seven diamond-mining companies operating in Zimababwe's Marange diamond fields will be consolidated into a single government-owned entity by the end of the year, Walter Chidhakwa, Zimbabwe's Minister of Mines and Mining Development, told New Zimbabwe.

The seven companies, Mbada Diamonds, Anjin, Marange Resources, Gye Nyame, Kusena, Jinan and the Diamond Mining Company, will be merged into a new entity called the Zimbabwe Consolidated Diamond Company that will be 50 percent state-owned.

Chidhakwa said that extraordinary general meetings (EGMs) will be held with each company during the first two weeks of August. At the meetings, the companies will be asked to provide audited financial statements and a formal response to the government's call for consolidation. He added that companies that choose to decline to participate in the governmental consolidation plan will be told it is time to "bid farewell."

Diamond Industry Stock Report

Industry stocks mostly fell this week, led by Birks Group (-15%) and Charles & Colvard (-5.8%) in New York, and Luk Fook (-5%) and Sarine (-14%) in Asia. Birks has lost more than 50% of its value this year. Mining stocks were generally lower, notably Stellar Diamonds
(-13%) and Kennady (-12%). View the detailed industry stock report.

  July 30 July 23 Chng.  
$1 = Euro 0.91 0.910 0.003  
$1 = Rupee 64.11 63.84 0.3  
$1 = Israel Shekel 3.78 3.82 -0.04  
$1 = Rand 12.71 12.46 0.25  
$1 = Canadian Dollar 1.30 1.30 0.00  
Precious Metals        
Gold $1,096.85 $1,089.30 $7.55  
Platinum $986.35 $974.00 $12.35  
Stock Indexes       Chng.
BSE 27,705.35 28,370.84 -665.49 -2.3%
Dow Jones 17,751.39 17,731.95 19.44 0.1%
FTSE 6,687.94 6,655.01 32.93 0.5%
Hang Seng 24,497.98 25,398.85 -900.87 -3.5%
S&P 500 2,108.57 2,102.15 6.42 0.3%
Yahoo! Jewelry 1,027.17 990.24 36.93 3.7%

Polished Trading Activity

Demand and activity remain slow in local polished market. Liquidity continues to be a major concern as Mumbai gears up for next week's IIJS. Read the polished diamond trading report.


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