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Rapaport Weekly Market Comment Jan. 23, 2015

Polished market improves with steady U.S. demand for I1-I2 clarity diamonds. Dealers lacking in confidence as buyers push for lower prices. Far East markets cautious ahead of Lunar New Year as China’s 2014 GDP growth slows to 7.4%. De Beers reduces prices as sightholders defer 20% to 25% of rough at Jan. sight. Okavango sells 3.2M Cts. for $552M ($168/ct.) in 2014. Rio Tinto’s 4Q diamond production -37% to 2.8M Cts. Swiss watch industry hurt by currency appreciation. Luk Fook 3Q same-store sales -7%. India's Dec. polished exports flat at $1.5B, rough imports -13% to $1.4B, net diamond account +62% to deficit of $314M. Platinum Guild International appoints Huw Daniel as CEO.

RapNet Data: Jan. 22
Diamonds   1,480,515
Value $7,864,704,715
Carats   1,437,783
Average Discount -28.57%

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  Forward contract sales will offer a wider range of products, including some of our 2-carat-plus products for the first time. The one-off set of forward contract auctions will provide our customers with a highly convenient way to secure the products they require for delivery in any one of the four cycles between March and July, or any combination of these delivery periods that suit their needs.

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De Beers Adjusts FCS Program

De Beers unveiled an adjusted 2015 Forward Contract Sales (FCS) program for its auction sales business and introduced some changes following feedback from clients. A single FCS event will first take place in March, where registered customers will have the opportunity to bid for future supply of a wider range of products (from the 2-carat-plus, grainers and smalls categories), available in multiple-unit volume and over one, two, three and four-cycle contract durations.

FCS was launched in 2014 in response from customers seeking either to lock in short-term security of supply that spot-sales cannot provide, or to complement their existing long-term supply contracts. The program allows buyers to bid on all future contracts offered, or any combination, and to bid for the volume of products they require in each contract. This allows buyers the flexibility to construct their own bespoke supply contracts. Customers with a track record of demonstrated demand will be notified and provided the full details in due course. Any customers new to auction sales or yet to participate in FCS can find out more via their account managers.

U.S. Jewelry CPI -5%

The U.S. consumer price index (CPI) for jewelry dropped 5.1% year on year to 161.75 points in December, which was about 4 points lower than November's reading and the lowest since July 2010. The average jewelry CPI for 2014 slipped 4% to 170.58 points and it was the lowest reading since 2010 when the index held at 161.24 points. Comparatively, the CPI for watches reflected a more stable environment in December as the index slipped only 1% year on year to 119.73 points and it was down 1.6 points from November's reading. However, the average CPI increased 0.5% during 2014 to close at a record high of 122.2 points.

Meanwhile, diamond prices contracted in 2014, according to the RapNet Diamond Index (RAPI), the global benchmark for polished prices. RAPI for 1.00-carat diamonds plunged 8.7% year on year, while RAPI for 3.00-carat dropped 6.6% and 0.30-carat fell 6.5%. Only prices for 0.50-carat diamonds held steady, or up 0.1%, according to RAPI. Gold prices in 2014, while at times reacting wildly to global and economic events, closed the year slightly lower, falling by 1.5% compared with 2013. But prices for silver plunged 19% and platinum was off by 12% in 2014.

The CPI for all consumable product categories in December rose 1.7% year on year to 236.38 points, closing out the year with an average CPI up 1.5% to a record 237.09 points.

Luk Fook Comps -7%

Luk Fook Holdings reported that same-store sales fell 7% year on year in the third quarter that ended on December 31. The decline resulted from weak consumer sentiment and the impact of the Occupy Central movement on retail sales, the company explained. The group's gem-set jewelry same-store sales fell 8%, while gold same-store sales dropped 6%, but by weight, gold same-store sales were flat.

Same-store sales in Hong Kong and Macau fell 6%. Gem-set jewelry same-store sales in Hong Kong and Macau dropped 9% and gold same-store sales fell 5% by value, but rose 1% by weight, aided by a mini-gold rush in November due to lower gold prices. In Mainland China, same-store sales declined 11% during the third quarter, with gem-set jewelry same-store sales up 13% but gold sales down by 16%.

Invest to Capture Future Success

Philippe Mellier, De Beers CEO, told sightholders that maintaining success in the diamond industry is dependent upon investment to sustain supply, financing and demand. De Beers, of course, is investing heavily in mining projects across Botswana, South Africa and Canada to deliver a sustainable supply along with creating consumer demand through the Forevermark brand.

Mellier explained that sightholders must also invest, whether the focus is on economies of scale, improved use of technology or more efficient distribution. Capturing value in the midstream requires ongoing investment so that customer demand remains strong. “We believe that the industry is approaching one of the greatest periods of opportunity in living memory and we are committing to major investments across the pipeline so that we can unlock the full value presented by the industry’s outstanding fundamentals,” he said.

Tara Adds Shop-In-Shop Outlets

Tara Jewellers opened four additional shop-in-shop format outlets to showcase certified diamond and hallmarked gold jewelry. The new outlets are located at Shoppers Stop stores in the Alpha One Mall, Amritsar; Prozone Mall, Aurangabad; Eros Mall, Delhi and The Great India Palace in Noida. Tara Jewellers now has 10 shop-in-shop counters in addition to owner-operated stores across India. Rajeev Sheth, the chairman and managing director of Tara Jewels Limited, explained that Tara Jewellers' outlets cater to consumer demand for elegant light-weight diamond jewelry.

ADK Plans Rough Diamond Event

The Antwerpsche Diamantkring (ADK) will organize a rough diamond event at the trading hall on February 25 and 26. ADK held a similar event in November which was met with great success. The rough diamond bourse opened its doors to exhibitors who were members of Antwerp’s four diamond bourses, buyers who were members of the World Federation of Diamond Bourses, their affiliates and their clients.

A. Jaffe Introduces 'Maps'

A. Jaffe introduced an extension to the brand's luxury bridal line called "Maps," a collection of customized jewelry that uses patented technology to create a virtual map of any location and pinpoint an exact spot with a diamond. The collection features pendants, bracelets, or charms in rose gold, white gold and sterling silver, with a line of cufflinks being introduced this spring. The brand noted that a trend toward personalized gifting is growing stronger, especially for special occasions such as Valentine's Day or a graduation.

Kingold May Presell Commercial Space

The Wuhan Housing Security and Management Bureau in Wuhan, China gave the green light to Kingold Jewelry Inc. to presell commercial property at the Kingold Jewelry International Industrial Park (Jewelry Park). The bureau authorized presales through two certificates, which cover five commercial buildings that occupy approximately 123,600 square meters, according to Kingold. The Jewelry Park's outer shell was recently completed, ending the first phase of construction on the massive project. Kingold anticipates using proceeds from early property sales to complete construction on the Jewelry Park, which is scheduled for completion this year and host a grand opening in December.

PGI Names Daniel as CEO

Platinum Guild International (PGI) appointed Huw Daniel as the group's CEO, succeeding James Courage who will retire from his post at the end of April. While the appointment is immediate, Daniel will take on full responsibility for PGI on April 1. PGI will also relocate its head office from London to Hong Kong with the aim of being fully operational by the summertime.

PGI USA, appointed Jenny Luker as president effective on February 2. Luker joined the company in its Newport Beach, California office in 1995 after completing post graduate education. Over the ensuing years she worked across every function in the company, including marketing, public relations and industry relations. Since 2005, she has served as PGI USA's senior vice president, with a focus on building platinum sales with key strategic partners.

Sierra Leone Gains Support for Factory

Peace Diamonds, a ReGrow West Africa development model, brought together private and public sector partners to create West Africa's first sustainable diamond cutting and polishing factory, which is a priority for Sierra Leone's Ministry of Mines and Minerals. The benefits of a local cutting and polishing factory include job and skill creation, enhancing government tax revenue, decreasing the financial incentives of smuggling diamonds and generally improves the transparency of diamond supply chains.

The project was discussed on the sidelines of Davos and still must overcome barriers, such as the absence of diamond processing skills and the lack of a reliable public electricity grid in Sierra Leone.

"Peace Diamonds is an innovative and compelling project," said Jeffrey Wright, a RESOLVE board member. "It includes a green energy system to power the factory, significant local ownership of the company that will own and operate the plant, and heavy investment in training local workers. Ultimately Sierra Leone needs to catalyze businesses such as this for its key value chains. Peace Diamonds creates new partnerships with leaders in the jewelry sector, which in turn brings more value home to miners in Sierra Leone."

AWDC Hosts Financing Talk in Davos

The Antwerp World Diamond Centre (AWDC) hosted a diamond-financing seminar in Davos, introduced by Flemish Minister, Geert Bourgeois. Only 5% of global financial institutions are involved in diamond industry financing, so participants were given information on the underlying dynamics of the global diamond industry, the future outlook and challenges ahead, especially in terms of sustainable financing. AWDC also provided insight into the growing demand for diamonds as an investment product. ABN Amro's Sabine Smets, the head of diamond and jewelry clients for Belgium, elaborated on the future prospects for diamond financing from a banker's perspective.

Groom Next-Gen Owners Early

Henry Hutcheson, the president of Family Business USA, said handing the family enterprise over to the next generation can be an exciting moment, as long as the elders have prepared, according to his book “Dirty Little Secrets of Family Business.” Begin grooming the next leader in advance by testing their abilities as employees. Find initiatives for them to own that involve group dynamics, but also assign projects where they hold sole responsibility for the outcome.

“It’s critical when you are selecting the next leader to realize that it’s not about who will lead,” Hutcheson said. “It is about ensuring that those who are not selected are in support of the decision and can work as a team with the new leader.” There are four key dynamics in a successful transition. First, the heir must have confidence in themselves, their thoughts and in their beliefs. “Much of this can be developed while working in the family business by constructing and leading significant projects,” Hutcheson said. But one shortcut is to have them work elsewhere early on.

Secondly, being competent also means developing bottom-up experience and being familiar with every aspect of the firm. Doing day-to-day grunt work can pay dividends down the line. Hutcheson said the third benchmark is measured by those who not only work well with people, but perceive the emotional state of others -- and react to it appropriately. Finally, the next family business leader must be measured at the same level of everyone else. “This will show that he or she is part of the team and that they want to be judged on the merits of their work, not a bloodline,” Hutcheson said. It will also help the next generation gain the respect of co-workers.

Rio Tinto's Rough Output -37%

Rio Tinto’s total rough diamond output declined 37% year on year to 2.841 million carats during the fourth quarter that ended on December 31. The company attributed the sharp reduction in output to a maintenance shutdown and the transition from open pit to underground mining at its Argyle mine in Australia, and a shift toward processing lower-grade ore at its Diavik mine in Canada. Production at Argyle fell 43% to 1.813 million carats during the quarter. Rio Tinto’s share from Diavik fell 25% to 927,000 carats. The company’s 78% share of output from the Murowa mine in Zimbabwe fell 4% to 101,000 carats.

For the calendar year, Rio Tinto’s annual rough diamond production dropped 14% to 13.872 million carats.

Diavik Production -25%

The Diavik diamond mine's production dropped 25% year on year to 1.54 million carats in the fourth quarter that ended on December 31. Diamond recovery weakened as a result of lower realized grades in all three ore bodies at Diavik and a higher proportion of the lower grade from A154 North. Despite the steep drop in production, full calendar year production was basically flat at 7.34 million carats, according to Dominion Diamond Corporation, which owns a 40% share in Diavik. Rio Tinto owns the remaining 60% stake.

A new mine plan and budget for calendar 2015 has been approved by both parties. Diavik is expected to produce 6.7 million carats this year. Mining activity will be exclusively underground, but in addition to the projected carat production from run of mine ore, there will be production from coarse ore rejects, which was not included in the outlook.


  Dec. $Mil. %Chng. YTD $Mil. %Chng.
Polished exports $1,452 0% $22,210 8%
Polished imports $442 16% $7,534 10%
Net exports $1,010 40% $14,676 8%
Rough imports $1,431 -13% $17,533 8%
Rough exports $108 3% $1,497 -16%
Net imports $1,324 -15% $16,036 10%
Net diamond account ($314) 62% ($1,360) 51%

Diamond Industry Stock Report

Most retail shares recovered from last week's slump with U.S. firms higher except for Birks (-2%) and JCP (-3%), while Far East was mixed but Luk Fook (-3%) led declines. Swiss shares lower led by Swatch (-7%) and Richemont (-3%). India mixed as Rajesh (+12%) led gains and Classic (-5%) led declines. Mining shares mainly higher with ALROSA (+13%) hitting a new high. View the detailed industry stock report.

  Jan. 22 Jan. 15 Chng.  
$1 = Euro 0.882 0.860 0.022  
$1 = Rupee 61.39 61.88 -0.5  
$1 = Israel Shekel 3.95 3.92 0.03  
$1 = Rand 11.40 11.56 -0.16  
$1 = Canadian Dollar 1.24 1.20 0.04  
Precious Metals        
Gold $1,302.20 $1,258.90 $43.30  
Platinum $1,280.00 $1,253.00 $27.00  
Stock Indexes       Chng.
BSE 29,006.02 28,075.55 930.47 3.3%
Dow Jones 17,813.98 17,320.71 493.27 2.8%
FTSE 6,796.63 6,498.78 297.85 4.6%
Hang Seng 24,522.63 24,350.91 171.72 0.7%
S&P 500 2,063.15 1,992.67 70.48 3.5%
Yahoo! Jewelry 1,276.16 1,240.79 35.37 2.9%

Polished and Rough Trading Activity

Trading activity has improved in the local polished market and many overseas buyers are in town. Liquidity remains of great concern. Read the full report.


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