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RAPAPORT NEWS SERVICE | November 26, 2015 |
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Rapaport Weekly Market Comment November 26, 2015

Rapaport calls for resignation of De Beers CEO and 30-50% rough price cut to inject liquidity and profits into diamond trade. De Beers stops buying and paying Botswana for rough, 2H15 De Beers rough sales expected to plummet at least 60%, possibly 70% Y/Y. (See Rough Bubble Bust article.) U.S. retail okay as holiday season starts. Dealers hope for last-minute orders but concerned as jewelers inventories are high. ALROSA 3Q sales -4% to $619M, loss -47% to $231M, inventory ~20M cts. worth ~$1B ($50/ct.). Signet 3Q sales +3% to $1.2B, profit of $15M vs. loss of $1.3M. Tiffany 3Q sales -2% to $938M, profit +137% to $91M. Chow Tai Fook 1H sales -4% to $3.6B, profit -43% to $201M.

RapNet Data: November 25
Diamonds 1,142,169
Value $8,071,704,603
Carats 1,267,908
Average Discount -28.60%

RAPI Chart
The RapNet Diamond Index (RAPI) is the average price for the top 25 diamond qualities (D-H, IF-VS2). It is based on the 10 best priced diamonds for each quality.

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  Without a viable, profitable and sustainable diamond trade distributing their diamonds, De Beers diamond mines are worthless.

Martin Rapaport, chairman of the Rapaport Group, on De Beers refusal to lower rough diamond prices

United States: New York trading quiet as many businesses close early for long Thanksgiving weekend. Demand weaker than usual before holiday...

Belgium: Sentiment much better than few weeks ago with holiday demand and shortages supporting the market. Very few fresh goods on the market...

Hong Kong: Polished trading stable but cautious with some early Chinese New Year demand. Good demand for dossiers...

India: Trading slowly returning to normal after Diwali with manufacturers expected to return next week. SI-I2 demand strong for U.S. market...

Israel: Gradual improvement continues with dealers focused on filling U.S. holiday demand. Some orders difficult to fill due to shortages... 

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How Botswana Will Find Independence

Fifty years on from independence, Botswana still finds itself in desperate need of improvements in its economic diversity. Its unsustainable reliance on diamonds is the reason why...

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Rapaport Calls for Resignation of De Beers CEO

In an article published this week (“Rough Bubble Bust”), Martin Rapaport details how and why rough diamond prices have been manipulated to artificially high unsustainable levels and the negative impact this is having on the profitability, liquidity and viability of the diamond trade. The fact that rough prices are significantly higher than resultant polished prices is reducing De Beers sales and profits. De Beers suspension of purchases and payments for Botswana diamonds is also having a negative impact on the country.

“The rough diamond distribution system is collapsing as De Beers and other mining companies attempt to force unsustainable artificially high rough diamond prices on the diamond trade. Rough prices are higher than polished prices, which have come down to realistic levels due to the downturn in the global economy. The mining company’s refusal to lower rough prices is destroying the diamond trade, creating severe financial losses, illiquidity, supply shortages, and the loss of tens of thousands of jobs. De Beers must immediately inject liquidity into the diamond trade by reducing rough diamond prices 30-50%. There is no justification for rough prices higher than polished diamond prices. Without a viable, profitable and sustainable diamond trade distributing their diamonds, De Beers diamond mines are worthless,” said Martin Rapaport, Chairman of the Rapaport Group.

De Beers Shareholders to Meet on Diamond Prices

De Beers shareholders were scheduled to meet November 26 to discuss diamond prices, Botswana Minerals, Energy and Water Resources Minister Kitso Mokaila said.

Speaking November 23 at a conference in Gaborone, the minister said “diamond prices have been coming down and something more sustainable needs to be done. The shareholders need to get their heads together.” Anglo American PLC owns 85 percent of De Beers and the government of Botswana owns the rest.

The conference, exploring the role of Botswana’s diamond industry in the socio-economic development of the country since independence, was hosted jointly by De Beers and the ministry November 23 and 24.

Diamonds in Hacking Case Still Unreturned

Only 175 of the 1,042 diamonds whose Gemological Institute of America (GIA) reports were invalidated last month following a hacking incident have been returned for examination, the organization said.

“It is imperative that all of the diamonds and their reports be returned to GIA for examination to remove the fraudulently altered reports from the market,” the GIA said in a statement November 25.

The GIA nullified the certificates after the gems’ color and clarity reports were changed by hackers. The group requested on October 23 that anyone in possession of any of the stones or reports return them immediately for a free examination.

DPA Hires Creative Agency

The Diamond Producers Association (DPA) has hired creative agency Mother New York to help kick-start the appeal of diamonds to young people.

The move comes after the consortium of miners, including ALROSA, De Beers and Rio Tinto, appointed Sally Morrison as managing director of marketing in October. She has responsibility for all of the organization's marketing activities, including the appointment of an agency partner.

Israeli Diamond Industry Offers 50% Cyber-Monday Cuts

The Israeli Diamond Industry is offering discounts of up to 50% for Cyber Monday, the annual post-Thanksgiving online sales bonanza.

Jewels are being sold from a dedicated promotions website, which will run until December 4, the trade group said in a statement November 23. List prices of items of offer range from $700 to $450,000 and reductions start at 6%.

Categories of jewels in the promotion include polished white and natural fancy color stones, engagement rings, pendants, earrings and bracelets, according to the statement.

Silver Supply Will Drop in 2015: Reuters

Silver supply will decrease 3 percent this year as production is predicted to grow at its slowest pace in 13 years following weaker demand from the jewelry and electronics industries, and China, according to a forecast from Thomson Reuters. Bullion coin sales jumped to a new record.

Total supply is expected to slide to 1,014.4 million ounces (Moz), Erica Rannestad, senior analyst in the GFMS team at Thomson Reuters, said at an event hosted by the Silver Institute. Output is projected to record its narrowest advance since 2002, up 0.3 percent to 867.2 Moz.

Jewelry fabrication is expected to fall 2.5 percent from a year earlier as the industry in China plummeted 25 percent.

Namibian Factories Decimated in Downturn

Nine of Namibia’s 13 diamond-cutting and polishing factories have shut down over the last few years because of a downturn in the industry across the world, The Namibian cited the country’s minister for mines and energy Obeth Kandjoze as saying.

The four remaining cutting centers now employ 700 workers compared with 2,000 at the peak, Kandjoze told an International Diamond Conference in Windhoek, according to the November 24 report.

WDC Seeks Amnesty’s Help to Resume CAR Trade

World Diamond Council’s president Edward Asscher called on Amnesty International to return to the Kimberley Process (KP) and help resume diamond trading with the Central African Republic. The country has been suspended from the KP since 2013.

Asscher joined more than 300 delegates from 50-plus countries at the five-day KP plenary meeting at Luanda in Angola last week, the industry body said in a statement November 24.His speech followed an Amnesty report on diamond trafficking from the Republic that alleged gem sales still funded violence in country. The report wasdescribed by the NGO’s legal adviser Lucy Graham as “a damning indictment of the Kimberley Process.”

Signet Misses Expectations

Signet Jewelers reported that third-quarter earnings were below expectations as sales were driven by lower-margin Kay stores and lower prices at Zales.

Mark Light, Signet’s chief executive officer, noted that earnings were affected by a modest margin impact due to a shift in its sales mix from the higher-value Jared stores to Kay.

The company registered adjusted earnings of 33 cents per share for the three months that ended October 31, compared to 21 cents a year ago. However, that was below its guidance given in August of 36 to 40 cents per share.

Group sales rose 3.3% to $1.22 billion in the third quarter year on year, with same-store sales up 3.3%. Net income rose to $15 million from a loss of $1.3 million a year earlier.

Tiffany���s Revenue -2%

Tiffany & Co said sales declined 2% to $938.2 million in the third quarter that ended October 31, with the strong U.S. dollar hampering reported revenue figures. In the nine months to October, sales decreased 2% to $2.9 billion and profit narrowed 4% to $288 million.

On a constant-currency basis, sales rose 4%. Comparable-store sales increased 1% due to growth in Japan and Asia Pacific but the performance was offset by lower sales in the Americas, the U.S. jewelry retailer said. Profit more than doubled to $91 million and net earnings per diluted share grew at a similar rate to $0.70.

The company has revised its full-year net earnings estimate for 2015 downward and now expects the figure to decrease by 5% to 10% from last year’s $4.20 per diluted share.

Chow Tai Fook’s Profit -43%

Chow Tai Fook reported that sales fell 4% to $3.6 billion (HKD 28.1 billion) in the six months that ended September 30 due to weak consumer sentiment in Hong Kong and Macau and declining numbers of tourists visiting Hong Kong from mainland China. Profit plummeted 43% to $201.4 million, the Hong Kong jewelry retailer said.

Same-store sales in Hong Kong and Macau slumped 18%, while mainland China comparative sales were basically flat. Same-store sales fell 9% overall, according to a statement November 24.

Revenue in Hong Kong, Macau and other markets excluding mainland China fell 7% to $1.5 billion. Jewelery sales in mainland China performed better, edged down 1% to $2 billion, while watch sales in that market slid 12% to $115.5 million.

Luk Fook’s Profit -43%, Revenue Slips

Luk Fook Holdings International Limited reported revenue declined 7.7% to $898.6 million (HKD 5.4 billion) in the six months to September 30 as a result of the Chinese downturn and the weak Hong Kong tourism industry.

Profit for the first half slumped 43% to $59.8 million, according to a company statement November 26. Overall revenue in Hong Kong – which makes up 60% of group-wide sales – fell 6.3% to $542.5 million.

Gem-set jewelry sales fell 16% to $323.3 million, but gold sales improved as a result of a sales rush when prices dropped in July and August.

Early Black Friday Data Not Good Indicator of Actual Sales

Early Black Friday figures claiming to signal how well the holiday period is progressing should be ignored as initial numbers fail to accurately predict the actual sales, according to

First round of news stories on Thursday evening or Friday are driven “almost entirely by anecdote” such as length of queues and isolated interviews, Ben Casselman, the chief economics writer at the data website, said in a note November 25. Updates on Sunday and Monday tend to contradict each other and are disproven by subsequent official statistics.

Birks Group’s 1H Revenue -4%

Birks Group’s sales fell 4% to $134 million year on year in the six months to September 26, mainly because of unfavorable foreign exchange rates, the Canadian jewelry retailer said November 20.

Excluding a $10.2 million adjustment attributable to translating Canadian sales into U.S. dollars, revenue increased 3% to $144.2 million. Comparable store sales grew 3%. Gross profit fell 7% to $51.6 million. The Canadian dollar depreciated 4.9% against the U.S. currency in the period, according to data compiled by Bloomberg.

Sotheby’s to Auction $4.6M Diamond Necklace

Sotheby's will auction a platinum and diamond necklace estimated to sell at between $3.6 million and $4.6 million in New York on December 9. The bib-style piece set with 217 carats of diamonds in a ‘sunburst’ motif was created in 1939 by Van Cleef & Arpels for Queen Nazli of Egypt, the auctioneer said.

Other lots include a platinum, Kashmir sapphire and diamond ring valued at $3.5 million to $4.5 million that had been in the possession of three generations of the family of financier Thomas Fortune Ryan, and a platinum and diamond ring estimated at $3.5 million to $4.5 million set with a square emerald-cut, 38.27-carat, D, VVS2, type-IIa diamond from the estate of an Italian countess.

Graff Ring Collection Inspired by Prohibition-Era Parties

Graff Diamonds has introduced a ring design inspired by America’s flamboyance in the 1920s and the excitement of alcohol-laden secret parties of the prohibition era.

Rings in the new collection feature a dome consisting of layers of diamonds in a swirl, with an elevated central stone as the focal point. Women at the time wore “show-stopping” statement rings which in subsequent years were billed ‘cocktail rings’ and have remained fashionable, the U.K.-based jewelry retailer said in a statement.

Among the designs is a ring of “exceptionally rare” pink pavé diamonds surrounding a 4.18-carat brilliant round precious stone. Others incorporate white pavé diamonds featuring a 5.34-carat radiant-cut fancy intense yellow stone, a 4.38-carat emerald-cut diamond or a 4.21-carat pear-shaped stone.

ALROSA Loss Widens 47%

ALROSA reported revenue decreased 3.5% to $619.4 million (RUB 40.6 billion) in the third quarter that ended September 30. The Russian miner’s loss increased 47% to $231.2 million, driven partly by the depreciation of the ruble against the U.S. dollar. The U.S. dollar strengthened 17% against the ruble between December 31, 2014, and September 30, 2015, the statement said, citing official exchange rates from the Central Bank of the Russian Federation.

The company’s diamond sales decreased 4.5% to $524.7 million, with exports rising 4% to $454 million and domestic sales falling 11% to $64 million. Diamond inventory expanded 48% to $724.7 million.

The company “revised” its sales budget to reflect changes in the diamond market and macroeconomic factors but kept this year’s production plan unchanged at 38 million carats, it said after a supervisory meeting last week.

Dominion Sales -53%

Dominion Diamond Corporation’s revenue slumped 53% to $145 million year on year in the third quarter that ended October 31. In volume terms, sales fell 31% to 795,000 carats and the average price slid 25% to $145 per carat, the Toronto-based miner said.

Sales from the Ekati Diamond Mine in Canada increased 5% to 480,000 carats, but a 41% drop in the average price to $184 per carat resulted in sales dropping 38% to $88.2 million in value terms.

Revenue from the Diavik Diamond Mine, also in Canada, dropped 29% to $56.8 million as the volume of rough sales plummeted 55% to 315,000 carats. However, the average price increased 56% to $180 per carat.

Stellar Diamonds Cuts Loss 25%

Stellar Diamonds, a U.K.-based exploration group focused on West Africa, cut its annual loss by 25% as revenue grew from naught last year and costs were slashed.

Its loss fell to $3.1 million in the year to June 30, according to a November 24 statement from the company, which is listed on London’s Alternative Investment Market. Sales jumped to more than $614,228. Administrative costs plummeted 48% to $1.4 million as corporate and project-level expenses were reduced.

Botswana Diamonds Cuts Loss 64%

Botswana Diamonds trimmed its losses by 64% to $568,511 (GBP 372,502) in the full year to June 30, the Irish miner reported in a statement November 19. The exploration group has not made any sales to date. It mines for diamonds in the Orapa and Gope areas of Botswana primarily through a 50-50 joint venture with Russia’s ALROSA.

While in 2014 its loss was compounded by the downward revaluation of assets to the tune of $939,931, the figure was zero this year. As a result, the operating loss narrowed 68% to $512,122 as administrative expenses for the year fell 23%.

Peregrine Diamonds Announces Rights Issue

Peregrine Diamonds has announced a $7 million rights issue to finance the remaining work on its Chidliak mining project at Nunavut in Canada and exploration in Botswana.

The proceeds will be used to further the remainder of the 2015-2016 Chidliak Diamond Resource Development Program, and fund the 2016 Chidliak work program, according to a company statement.

Funds raised would also go toward extending exploration in Botswana and potentially for meeting working capital requirements, the company added.

IDC Unveils New Website

The International Diamond Council (IDC), a trade body that formulates globally recognized standards for diamond grading and terminology, has launched a new website to aid users’ understanding of the trade.

The site enables downloading the IDC’s rules on describing precious stones in English, German, Russian, Arabic and Chinese, the council said in a statement November 20.

The development comes after the International Organization for Standardization (ISO) published a new consumer-orientated guide to diamond vocabulary in July 2015.

Kim Kardashian Demands Diamond Choker

Celebrity Kim Kardashian has requested a Lorraine Schwartz diamond choker as a ‘push present’ – a post-pregnancy gift – from husband Kanye West.

“Do you guys believe in a push present? I never did, but all of my friends do! We have the funniest e-mail chains discussing it,” she wrote on her official blog, before adding “this pregnancy, I would love a Lorraine Schwartz diamond choker, like the ones I've worn before to the Art + Film Gala.”

The blog presents other ‘push present’ jewelry gift ideas ranging from $78 to $2,600.

Diamond Industry Stock Report

Mining stocks this past week were led by a surge by Lucara Diamond Corp. (+28%) following its discovery of the second largest diamond in history. Dominion Diamond Corporation fell 9% on disappointing third-quarter results. North American retailers Birks Group (+27%) and Tiffany (+9%) and Hong Kong’s Chow Tai Fook (+4%) rose despite reporting mixed or disappointing earnings figures.

View the detailed industry stock report.

  Nov. 26 (10:30 GMT) Nov. 19 (10:30 GMT) Chng.  
$1 = Euro 0.94 0.94 0.007  
$1 = Rupee 66.56 66.16 0.4  
$1 = Israel Shekel 3.88 3.89 -0.01  
$1 = Rand 14.24 14.13 0.11  
$1 = Canadian Dollar 1.33 1.33 0.00  
Precious Metals       Chng.
Gold $1,071.08 $1,070.72 $0.36 0.0%
Platinum $850.50 $849.42 $1.08 0.1%
Silver $14.22 $14.18 $0.04 0.3%
Stock Indexes       Chng.
BSE 25,958.63 25,792.40 166.23 0.6%
Dow Jones 17,813.39 17,737.16 76.23 0.4%
FTSE 6,362.94 6,255.82 107.12 1.7%
Hang Seng 22,488.94 22,888.92 -399.98 -1.7%
S&P 500 2,088.87 2,075.00 13.87 0.7%
Yahoo! Jewelry 1,000.82 1,050.48 -49.66 -4.7%

Polished Trading Activity

Trading slowly returning to normal after Diwali with manufacturers expected to return next week. SI-I2 demand strong for U.S. market with some improvement in VS diamonds. Suppliers holding firm prices for confirmed orders but major retailers pushing for significantly lower polished prices. Shortages supporting prices of select goods. Rough demand very weak with limited manufacturing expected through December. Local demand stable as jewelers anticipate moderate wedding season. Good gold jewelry demand at lower prices.

Read the Polished Diamond Trading Report


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