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RAPAPORT NEWS SERVICE | September 25, 2015 |
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Rapaport Weekly Market Comment September 25, 2015

Hong Kong show OK but Chinese demand slow before Oct. 1 Golden Week. Polished buyers selective and making low offers. Certs slow with better demand for lower quality parcels. Polished production significantly reduced as cutters shrink existing inventory. De Beers says 2014 global production -3% to 142M ct., diamond jewelry demand +3% to $80B. Russia’s 1H rough exports -16% to $2.1B, production +8% to 18.5M cts. Petra Diamonds FY revenue -10% to $425M, profit -12% to $60M. Sotheby’s expects up to $4.6M/ct. for cushion-shape, 12.03 ct., fancy vivid blue, IF diamond. THE RAPAPORT PRICE LIST WILL NOT BE PUBLISHED ON OCT. 2 DUE TO JEWISH HOLIDAY OF SUCCOT.

RapNet Data: September 24
Diamonds   1,322,003
Value $8,624,848,174
Carats   1,397,556
Average Discount -27.80%

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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  There is reason to be optimistic, even though conditions do, of course, remain challenging overall.

Ernie Blom, president, World Federation of Diamond Bourses

United States: Diamond suppliers have not yet reported the usual rise in activity associated with the pre-Christmas holiday period. Still, demand is steady and there is some optimism that stronger orders will start to flow in the coming weeks...

Belgium: Activity in Antwerp was fairly subdued this week as the market focused on the Hong Kong Jewellery and Gem Fair. The mood has improved since the beginning of September when dealers returned from the summer break...

Hong Kong: The all-important September show met dealers’ low expectations with steady activity but lower visitor traffic and transactions than in previous years. The mood was relatively positive as dealers embraced the opportunity...

India: Sentiment remains weak in Mumbai as the Hong Kong show didn’t inspire renewed confidence among the local trade. There is business being conducted but transaction volumes...

Israel: The past week was a fairly rushed one for many Israeli diamantaires who traveled to the Hong Kong show between the Jewish holidays of Rosh Hashanah and Yom Kippur. Consequently, activity in the Israel Diamond Exchange was light... 

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De Beers Highlights India’s Role in Countering Flat Growth

The world’s largest diamond miner sees the industry’s biggest opportunity in India, given its burgeoning economy and emerging middle class, based on The De Beers Group of Companies’ Diamond Insight Report 2015.

The company reported that world demand for diamond jewelry in 2014 rose 3% to more than $80 billion for the first time, as global rough diamond production rose 6% to $19 billion.

Meanwhile, India’s consumer diamond market has achieved almost uninterrupted growth over the last 20 years and is now one of the world’s largest consumer markets. At the same time, retail behavior is changing as chains are set to grow in significance and lead the way in online development, both as sales channels and as a means of researching future purchases, De Beers concluded.

Diamond demand grew in all five of the top-consuming markets – the U.S., China, Japan, India and the Gulf Cooperation Council nations, which account for 75% of global purchases, according to the report. Elsewhere, growth was stymied by a strong dollar.

Russia’s Rough Diamond Exports Slide

Russia's rough diamond exports fell 16% year on year to $2.13 billion in the first half of 2015, Itar-Tass reported, citing the country’s Ministry of Finance. By volume, exports declined 10% to 17.83 million carats. Rough imports rose 70% to $46.5 million as volume more than tripled to 28,000 carats.

The country’s diamond production rose 8.3% to 18.5 million carats in the first half, with the value of production up 22% to $2 billion. The ministry also reported that the average price of production increased by 13% to $109.13 per carat, an estimate based on Finance Ministry pricing, which does not correspond with market prices but rather follows the insurance value of the diamonds, per Interfax.

ALROSA, which accounts for the bulk of Russia’s diamond production, reported that its production grew 13% to 18 million carats in the first half, while the average price of its sales have fallen 6% since the beginning of the year. The company has since reduced prices by 8% to 10% and allowed its clients to defer 50% of their allocated supply at the September sale, sources confirmed with Rapaport News.

Diamond Industry’s Outlook Heading into Holiday Season Seen Positive

The outlook for the global diamond trade could be positive in the upcoming holiday season given the early indications that the Hong Kong Jewellery and Gem Fair has been solid and as the world’s two main producers cut prices.

Last week, ALROSA said it would reduce prices by up to 10 percent at its September sale, according to a press statement issued by the World Federation of Diamond Bourses (WFDB). That followed De Beers' decision to slash prices by similar levels at its August sight.

Such steps are bringing down prices to more realistic levels, the statement released from Antwerp said on September 22. In addition, the much-needed cuts in polished production have been carried out, particularly by the Indian manufacturing sector.

“I feel there is reason to be optimistic, even though conditions do, of course, remain challenging overall,” Ernie Blom, president of the WFDB, which has 30 affiliated bourse members, said. “The Hong Kong show, due to the global nature of its exhibitors, buyers and visitors, serves as a useful barometer of industry sentiment, so it is very promising that demand at the fair was stable.”

U.S. Jewelry Demand Shows Improvement in July

U.S. sales of fine jewelry and fine watches increased by 3.5 percent in July, according to the latest data from the U.S. Department of Commerce.

Specialty jewelers, stores with a majority of their revenue from jewelry and watch sales, showed a 2.9 percent sales increase in the month. Jewelry sales through larger, big-box merchants such as Wal-Mart and Costco rose an estimated 3.9 percent in July. Historically, July sales are less than 8 percent of the industry’s annual sales, with few promotional and sales events.

The Commerce department revised monthly sales data for May and June, which had shown either sales declines or very small gains for the total industry. Data for both specialty jewelers and the total U.S. jewelry industry were revised and while specialty jewelers’ June sales gains now reflect a more modest increase.

Independents’ Share of Diamond Jewelry Market Slips

Independent jewelers’ share of the U.S. diamond jewelry market has fallen, with chains and online grabbing a larger piece of the pie, according to the recently released De Beers’ Market Insight Report.

Single-store independents remain the biggest sales channel in the diamond jewelry market, but not by much, according to De Beers, which found that those independents accounted for 35% of diamond jewelry sales in 2014 and national chains ranked close behind with 31%. Before the recession of 2007, however, the industry saw a far greater spread, with independent jewelers claiming 56% of the market and national chains just 25%.

Meanwhile, small and medium-size chains — defined as chains with between two and 10 stores — saw their market share expand from 2% in 2007 to 11% last year.

Tara Jewels Enters Exclusive Agreement with Sterling

India’s Tara Jewels signed an exclusive manufacturing and supply deal with Sterling Jewelers Inc., a part of Signet Group, for the designer brand Angel Sanchez. The brand’s offerings have been assigned an initial value of more than $4.4 million, including designs that are being preliminarily tested in about 60 stores.

Sterling Jewelers Inc. has approximately 1,400 stores in the U.S. Tara Jewels designs and manufactures jewelry and has retail operations in India.

Tiffany & Co.’s Grows Global Footage

Tiffany & Co. is seeking to enhance its customers’ in-store experience by increasing its store space at the rate of 2% to 3% a year and improving client service, Ralph Nicoletti, the company’s CFO and executive vice president, told investors at the Stifel 2015 Consumer Conference in New York.

Nicoletti said that Tiffany & Co. had targeted mid- to high-single-digit sales growth, improved operating margins and doubled-earnings growth “over the long term.”

Tiffany opened new stores in 2014 in Moscow and on the Champs-Élysées in Paris, and this year opened locations in the Miami Design District and Shanghai. The planned annual increase in global footage is to be enacted “for the foreseeable future,” according to Nicoletti. The retailer opened 11 new stores during the fiscal year that ended on July 31, 2015.

Nicoletti also stressed the importance of “vertical integration” within the company’s supply chain and said it now internally manufactures more than half of the products it sells and sources a “high percentage” of its diamond requirements in a rough form from producers.

Ivanka Trump Jewelry Seller Ordered to Pay $2.4M

Madison Avenue Diamonds, the company behind the Ivanka Trump Fine Jewelry brand, has been ordered by the New York State Supreme Court to pay $2.375 million plus interest to De Beers sightholder KGK Jewelry following a long-running dispute.

Madison Avenue Diamonds had claimed that it was not obliged to complete the payment of $3 million in a series of installments to KGK that had been agreed upon by the two parties when they terminated a supply arrangement in 2012.

Madison Avenue Diamonds argued that KGK’s failure to return certain computer design files before the agreed-upon 45-day deadline, following the closure of their contract, had constituted a “material breach” and that Madison Avenue Diamonds was therefore relieved of its financial obligations.

It took KGK 46 days to send the files back. Judge Charles E. Ramos ruled that Madison Avenue Diamonds had not been released from its obligation to pay because the agreement did not indicate that “time was of the essence” and there was no sign that Madison had been damaged by the one-day delay.

The court rejected Madison Avenue Diamonds's arguments that the jewelry KGK provided was “of substandard quality,” which KGK described as a “belated attempt to amend its claims and defenses.”

Botswana Diamonds, ALROSA Start Orapa License Work

Botswana Diamonds reported that work is underway on three prospecting licenses in the Orapa region of Botswana that are part of a joint venture between the African exploration group and ALROSA.

Heavy concentrate sampling and reconnaissance work have begun, to be followed by heavy concentrate sampling to evaluate kimberlite indicator minerals and how close they are to potential primary sources.

Following this venture, the team will carry out verification sampling on smaller licensing areas in the Gope region of Botswana, with the aim of defining potential new drill targets.

Petra Diamonds’ Profit Drop

Petra Diamonds reported double-digit percentage drops in both profit and revenue for its fiscal year that ended on June 30, on the back of a weakened market and low prices. The company’s revenue fell 10% to $425 million, while its adjusted net profit after tax was down 33% to $62.8 million.

CEO Johan Dippenaar also attributed the decrease to the reliance of Petra’s underground mines on “mature, diluted mining areas,” but said this drop and current negative market conditions were partly offset by currency weakness. In a later conference call with investors, Dippenaar said the impact of lower rough diamond pricing was partially hedged by the positive impact of the weaker rand – down 10% against the dollar – on the company’s cost base.

AGTA Elects New Officers

The American Gem Trade Association (AGTA) announced its newly elected board of directors, who will take office in February 2016 for three-year terms. Jeffrey Bilgore of Jeffrey Bilgore LLC was elected president. Cynthia Renée (Marcusson) of Cynthia Renee Inc. and Avi Raz of A & Z Pearls Inc. were re-elected to the board. Kusam Malhotra of K & K International and Jeff Mason of Mason-Kay Inc. were newly elected members.

Continuing board members include: Gerry Manning, vice president; Pramod Agrawal, treasurer; Bruce Bridges; Charles Carmona; William Heher; Gina Latendresse; Niveet Nagpal; Robert Van Wagoner; Simon Watt and Larry Woods.

Sotheby's May Fetch Record $55M for Blue Moon Diamond

The Blue Moon, a fancy vivid blue diamond weighing 12.03 carats and described by the Gemological Institute of America (GIA) as “internally flawless,” could sell for a record $55 million (EUR 47 million) when it goes up for auction on November 11 in Geneva, Sotheby's announced.

The auction house estimates that its sale price will range between $35 million and $55 million, which, at the higher end, would set a record for any diamond sale.

The diamond will be exhibited in Hong Kong, London and New York ahead of the sale. The Blue Moon, discovered in South Africa, will be the largest cushion-shaped stone in that category to ever appear at auction.

Amnesty Reports on CAR Blood Diamonds

Amnesty International announced that it will publish a new report on the diamond industry that focuses on the Central African Republic (CAR), where illicit trade continues unabated amid sweeping conflict. Research for the report was conducted in the CAR, neighboring countries and the diamond-trading centers, Antwerp and Dubai, according to an Amnesty announcement.

The findings revealed systematic failures in preventing the trade of “blood diamonds,” according to Amnesty International. Due out September 30, the report will address illegal and unethical practices across the sector, including how armed groups in the CAR, as well as diamond traders in both the CAR and global trading centers, profit from illegal and unethical activity.

Edinburgh Assay Brings Diamond Certification to Heathrow

The Edinburgh Assay Office introduced a new diamond certification option for its Hallmarking in Transit service at London’s Heathrow Airport. The service, to be provided by Solitaire Gem Labs (SGL), will enable precious metal jewelry importers from outside the U.K. to have their goods hallmarked and certified at one secure location as part of the import process.

Scott Walter, the CEO and assay master of the Edinburgh Assay Office, explained, “This further simplifies the logistics process for importers and provides the flexibility to source product from multiple locations whilst retaining a single, logistically efficient route to market.”

Five Firms Awarded RJC Certification

The Responsible Jewellery Council (RJC) awarded five companies the Christian Dior certification for meeting the organization’s “highest ethical, human rights, social and environmental standards.”

The firms include the Gem Certification & Assurance Lab, a diamond, gemstone and jewelry certification laboratory headquartered in New York; French polished diamond distributor Messika Diamonds; Paris-based retailer Christian Dior Couture; precious metals provider Cookson Métaux Precieux – CooksonCLAL and Indian fancies manufacturer Ashwin Diamonds.

German Designer Wins Gem Empathy Award at IJL

The Gemmological Association of Great Britain (Gem-A) named Frankfurt-based Marina Jacob’s ‘Crushed Ice’ ring as the winner of this year’s Gem Empathy Award. Jacob, a designer and manufacturer of fine diamond and gem set jewelry, designed the stunning ring with a 13.83 ct. green beryl and 30 baguette diamonds.

Gem-A’s Gem Empathy award is presented annually on the last day of International Jewellery London to the exhibitor displaying, in the opinion of the judges, a single piece or collection of jewelry that makes captivating use of one or more gemstones and provides accurate ethical descriptions as well as displaying creativity and imagination.

Diamond Industry Stock Report

Industry retailer stocks broadly declined this past week with the exception of Birks Group (+12.7%), which bounced back last week's 18-month low. Mining shares also declined, led by Petra Diamonds (-16.8%) and De Beers parent Anglo American (-16.2%). Platinum (-7.4%) fell to a five-year low. 
View the detailed industry stock report.

(12:00 GMT) Sept. 24 Sept. 17 Chng.  
$1 = Euro 0.8886 0.8829 0.006  
$1 = Rupee 66.22 66.171 0.0  
$1 = Israel Shekel 3.9508 3.8707 0.08  
$1 = Rand 13.9899 13.3706 0.62  
$1 = Canadian Dollar 1.338 1.3199 0.02  
Precious Metals        
Gold $1,136.07 $1,117.71 $18.36  
Platinum $934.31 $964.40 -$30.09  
Silver $14.79 $14.86 -$0.07  
Stock Indexes       Chng.
BSE 25,863.50 25,963.97 -100.47 -0.4%
Dow Jones 16,279.89 16,739.95 -460.06 -2.7%
FTSE 5,989.42 6,216.86 -227.44 -3.7%
Hang Seng 21,095.98 21,854.63 -758.65 -3.5%
S&P 500 1,938.76 1,995.31 -56.55 -2.8%
Yahoo! Jewelry 1,001.53 1,009.66 -8.13 -0.8%

Polished Trading Activity

Continued low demand and activity as attention focused on Hong Kong show, which did not meet market expectations. Liquidity still tight...

Read the Polished Diamond Trading Report


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