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Rapaport Weekly Market Comment Oct. 31, 2014

Polished trading quiet with Indian market closed for Diwali holiday. U.S. market stable with good demand for commercial-quality SI-I2 diamonds. Cash buyers gain higher discounts as suppliers seek to boost liquidity. Rough trading slow while sightholders hope for lower prices at next week’s De Beers sight. Petra Diamonds sells 232.08ct. rough for $15M ($65,577/ct.) to Diacore. India’s Sept. polished exports +11% to $2.7B, rough imports +16% to $1.5B. Titan’s 2Q revenue +56% to $580M, profit +29% to $39M. Blue Nile’s 3Q revenue +7% to $106M, profit -43% to $1.7M. Rio Tinto says record prices at Argyle pink diamond tender. Botswana to appoint new mines minister following elections.

RapNet Data: Oct. 30
Diamonds   1,336,201
Value $7,743,138,328
Carats   1,384,988
Average Discount -27.76%

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Swiss Watch Exports +3%

Swiss watch exports rose 2.8% year on year to $2.065 billion (CHF 1.963 billion) in September, according to the Federation of the Swiss ‎Watch Industry.‎ Wristwatch exports rose 3.2% to $1.951 billion, while the number of units shipped grew 4.2% to 2.672 million. The value of other timepiece exports fell 3.8% to $48.1 million. Exports to Hong Kong rose 3%, while exports to the U.S. grew 7.3%, but exports to China fell 4.2%. Exports to Japan increased 2%, while European markets were mixed.

Blue Nile's Profit Sinks

Blue Nile Inc. reported that sales rose 6.9% year on year to $105.8 million in the third quarter that ended on September 28. Cost of sales increased 8.3% to $86.9 million and income plummeted 43.2% to $1.65 million or 14 cents per share. Gross profit as a percentage of sales fell to 17.8% compared with 18.9% one year earlier. U.S. engagement jewelry sales at Blue Nile rose 5% year on year to $60.8 million, while non-engagement jewelry revenue fell 1.7% to $23.5 million. International sales jumped 25.6% to $21.5 million. Sector sales were weaker than the U.S. jewelry market as a whole, as determined by Rapaport News.

In other developments, Blue Nile added Sloane Street and Lisa Jenks to its designer collective initiative, which was launched in March to broaden offerings through partnerships with jewelry designers. The collective already includes Monique Lhuillier Fine Jewelry and Zac Posen. Sloane Street will feature 18-karat gold jewelry with rubies, sapphires and other precious and semi-precious stones as well as "The Sage by Sloane Street" that includes diamonds, pearls and a signature "rough diamond" in every piece. Jenks' designs are inspired by the cultural landscape and handcrafted with pearls and sterling silver.

Titan's Profit Soars

Titan Company Ltd. reported that revenue rose 55.7% year on year to $580 million (INR 35.65 billion) in the second quarter that ended on September 30. The strong increase was, in part, due to the redemption of "Golden Harvest" accounts from existing customers, which were set to be closed as a result of new regulatory changes, according to the company. Titan's profit rose 28.6% to $39 million. Watch division revenue was given a boost from strong sales of Titan and Fastrack brands and rose 20% to $85.7 million. Jewelry business sales jumped nearly 65% to $476 million. Titan operates precision engineering and eyewear divisions and a business-to-business service, with a combined revenue increase of nearly 21%.

Overstock Debuts Jewelry Vault Concept purchased's inventory out of foreclosure to sell online in its new "Jewelry Liquidation Vault." had estimated the value of the inventory at $89 million. Overstock also said it has trusted relationships with jewelry merchants and designers from around the world who will be able to use the liquidation vault to showcase and sell their own jewelry online. Overstock claimed that inventory was its largest purchase to date.

Equity Firm Buys Christ

Private equity firm 3i Group purchased the Christ jewelry stores from retailer Douglas and its equity partner Advent. The deal was reportedly worth $510 million (EUR 400 million), including debt. Insiders told Reuters that 3i is investing $273 million in the jewelry chain. Christ's annual revenue was reported at about $508 million for the latest fiscal year, it employs 2,400 and operates 220 stores. Douglas sold the jeweler to focus on its core retail business of beauty and perfumes. The sale is subject to regulatory approval. 

Crisis or Crying Wolf?

Dilip Mehta, the CEO of Rosy Blue, penned an essay stating that the mood in the market, while currently at a low point, should be getting stronger due to several factors. Aside from a round of headlines about banks shunning the industry and dealers offering deep discounts to improve cash flow, the actual liquidity challenge is the result of specific measures all of which can be addressed. Paramount to moving forward, however, is to operate with sound business practices. Read the essay and weigh in.

Rapaport Says Put America First

Putting America first by adding and promoting value to diamonds and jewelry was the cornerstone of a presentation by Martin Rapaport, the chairman of the Rapaport Group, to members of the DMIA, AGA, WJA and other industry groups on October 27 in Manhattan. While the U.S. market is often taken for granted, Rapaport said it remains most important to the industry and is the “primary place” for the last 18 inches — a designation that refers to the retail counter and the final distance that a diamond travels over its long journey from mine to consumer. Furthermore, the U.S. market leads the world in “adding value” to diamond products.

Making customers happy, Rapaport said, is the “name of the game” for diamond dealers and retailers and that is how the market will prosper moving forward. At a time when some banks are pulling out of the diamond business it is up to dealers and retailers to create demand. Branding, utilizing social media, championing ethics, communicating value to customers and “distinguishing yourself” from competitors are key to success, in Rapaport’s view. Dealers must also invest in and develop those practices in order to survive and thrive in today’s increasingly challenging and disruptive business environment. “Go deeper,” he said. “Don’t just sell diamonds, sell relationships.”

Chow Tai Fook Unveils Anniversary Diamond

Chow Tai Fook will unveil a 104-carat, D, internally flawless, round, brilliant-cut that it named the Cullinan Heritage 1 in honor of the company's 85th anniversary, which will take place on November 28. The diamond will be showcased alongside other diamonds that were cut from the same 507.55-carat, type IIA rough diamond known as the Cullinan Heritage, which the company purchased in 2010 for $35.5 million. Master craftsmen have spent the past three years analyzing and perfecting the best approach to cutting and polishing the diamond. The stone is graded by Forevermark and will be set in a special design by a world-renowned jewelry artist.

JTV Taps Crowdsourcing for Top Gem

Jewelry Television (JTV) is tapping into crowdsourcing to determine JTV's Gem of the Year initiative, based on the most votes for gemstones between October 28 and November 9. JTV gemstone buyers, gemology experts and merchandisers narrowed the selection to three top-performing gemstones at the network: chrome diopside, sometimes known as tashmarine; morganite and tanzanite. The initiative creates a lot of buzz for the network leading into the all-important Christmas season.

Price Matters, Walmart Weighs Matching

In preparation for a wickedly competitive Christmas season in the U.S., retail giant Walmart is testing an initiative that would meet competitors' online prices. Store managers already have wiggle room on certain product prices from their local markets, but Walmart's executives have expressed reservations that a nationwide rollout could further erode profitability during the most important season of the year.

However, Walmart prices don't have far to match, if at all. According to 360pi, the most prolific dynamic-pricing practitioners are Amazon and Sears, with daily prices changing for nearly 20% of online items, but these are not always the lowest. Walmart, on the other hand, has only been changing daily prices on 8% of items; nonetheless, in a study with Wells Fargo, 360pi found that Walmart and its biggest rival Target already offered lower online prices than Amazon. Target's prices were approximately 4% lower than Amazon's and about equal with Walmart. The study's author Matt Nemer stated that Walmart went from being priced 1% lower than Amazon six months ago, to approximately 10% lower in September for a basket of items.

In a fiercely competitive pricing environment underway, a small percentage matters. Earlier this month, the National Retail Federation (NRF) determined that the average U.S. consumer plans to spend 44% of their Christmas gift budget online -- the highest to date. Prices and value matter most, with 75% of shoppers stating that a sale or discount will entice them to make a purchase with a retailer either on or off line. Walmart is also promoting its mobile app, Savings Catcher, to gain a competitive advantage this holiday season. The app analyzes shopper’s receipts and if a local competitor advertises a lower price, shoppers receive an eGift card for the difference.

Dubai Show Adds Exhibitors

Organizers of the Dubai International Jewellery Week, scheduled for December 3 to 6, stated that exhibitor participation is up 25% compared with 2013. The event expects to host more than 380 exhibitors and 800 brands from 30 countries, with 100 new firms planning to participate this year at the Dubai World Trade Centre (DWTC). Given strong jewelry demand in Dubai, Thailand has committed to occupying 42% more floor space at the show this year, while the country pavilion from Lebanon increased its occupancy by 28%, Hong Kong by 18% and India by 16%. In addition, the number of loose stone dealers and diamond jewelry manufacturers occupying the Dazzling Avenue area will increase 42%, according to the organizers. 

Groups Decline to Attend WDC Meeting

The WFDB, GJEPC, IDE, CIBJO, Federation of Belgian Diamond Bourses, Bharat Diamond Bourse, Israel Diamond Institute and Dubai Diamond Exchange jointly agreed not to participate in the World Diamond Council's (WDC) annual meeting, citing lack of clarity on mission and direction. The groups took issue with what they called a "biased survey conducted without consulting 98% of the industry," and while being committed to the Kimberley Process, they wouldn't support arbitrary decisions and lack of transparency from an entity under the mandate of the WFDB.

While the WDC stated it would be discussing the survey during the meeting, scheduled for October 28 to 30 in Antwerp, it would also address Kimberley Process issues as well as ethical and legal challenges facing the industry. The group also coordinated an address by Philippe Mellier, the CEO of De Beers.

Ahead of the meeting, the WDC named Patricia Syvrud, the founder and president of Joia Consulting LLC, as its first executive director, effective October 31. Syvrud will report to the WDC's executive committee, assist the president, represent the group in the Kimberley Process and provide overall leadership and strategic direction to the organization. Edward Asscher, the president of the WDC, cited Syvrud's breadth and depth of knowledge of the jewelry industry, as well as experience in the non-profit sector, for making her an obvious choice in the new role.

WFDB Explores Strategic Initiatives

WFDB held a strategy session that was focused on operational areas of the trade and members agreed to broaden and deepen ongoing dialog and cooperation with all industry stakeholders. With 30 international bourses, the WFDB expects to increase its communications, thereby providing the market and observers with ongoing reports and news of its activities and plans. Attendees agreed on new objectives for the future and appointed a facilitator to manage further discussions. The WFDB added that the meeting defined priorities including, industry banking, company profitability, compliance, certificates, shipping, disciplinary measures and its support for generic marketing.

U.S., India Assign Trademarks

The U.S. Patent & Trademark Office (USPTO) issued the trademark "Rebel Chique Man-Made Diamonds by Royal Asscher" to Mine Diamonds B.V. Ltd. of the Netherlands, with registration number 4622867 and an international number 1158011 on October 21. The trademark "Portier Jewelers" was also issued to Ediberto Portilla of Florida with registration number 4624062. United States Patent No. D716,155 was issued on October 28 and assigned to Graff Diamonds SA of Switzerland. The patent, a watch case, was invented by Laurence Graff and filed on October 21.

In India, the Office of The Trade Marks Registry approved the trademark "Koyilat" for Koyilat Jewellery on September 22 with registration number 1879620. Rajshree Jewellers received approval for the trademark "R & J" with registration number 2051946.

Strong Demand at Argyle Tender

Rio Tinto stated that its annual Argyle tender of pink and red diamonds achieved outstanding prices, with the highest average price per carat to date. The company did not provide actual sales figures. There were more than 600 bids for 54 lots, with the most valuable stone called the Argyle Cardinal™, a 1.21-carat radiant-cut fancy red diamond, selling to Glenn Bakker Jewels.

Petra's Revenue +55%

Petra Diamonds reported that revenue grew 55% year on year to $100.8 million during the first fiscal quarter that ended on September 30. The company sold 532,250 carats during the period, 10% less than one year ago. Group production rose 2% to 833,744 carats, marking the highest quarterly production figure to date. Petra noted that the rough diamond market is currently exhibiting post-summer softness but it expects the market to improve beginning in late November as Christmas and the wedding season in India usually result in greater demand.

Production at the Finsch mine was flat at 517,998 carats and sales totaled $26.7 million, while production at the Cullinan mine fell 4% to 209,632 carats and sales jumped 154% to $43.2 million. Koffiefontein produced 10,618 carats, 37% higher and sales rose 48% to $3.7 million. Kimberley underground recorded a 31% production increase to 36,036 carats, with sales of $7.8 million.

Petra sold an exceptional 232.08-carat white diamond that was recovered from the Cullinan mine in South Africa to Diacore for $15,219,219 or $65,577 per carat. Johan Dippenaar, the CEO of Petra Diamonds, said, "We are delighted to have achieved the sales result for this exceptional white stone, which is an outstanding example of the very high-quality, large diamonds produced at Cullinan."

Trans Hex Completes Acquisition

Trans Hex completed the acquisition of Namaqualand mines from De Beers Consolidated Mines (DBCM) in a transaction valued at $21.2 million in May 2011. Closing was delayed and subject to a number of conditions, including all beneficiation and necessary statutory and regulatory approvals. Emerald Panther Investments (EPI) 78 Ltd., in which Trans Hex owns a 40% interest, acquired all assets and liabilities related to Namaqualand from DBCM with all outstanding conditions being fulfilled.

Kleven to Build Vessel for De Beers

Kleven Verft of Norway will build a diamond-mining vessel for De Beers Marine Namibia that is modeled after the MT 6022 design from Marin Teknikk. The new ship will be highly specialized for deep water mineral exploration with a wider range of tailor made equipment and features. Underwater mineral exploration is a new line of business for Kleven and it has worked with Marin Teknikk on a number of prototypes for the De Beers contract, which consists of two phases with final building approval expected during the first quarter of 2015. The vessel will be built at Kleven Verft in Ulsteinvik, Norway and is anticipated to be completed in June 2016.


  Sept. $Mil. %Chng. 2014 $Mil. %Chng.
Polished exports $2,664 11% $16,561 3%
Polished import $1,097 81% $5,608 2%
Net exports $1,567 45% $10,953 3%
Rough imports $1,482 16% $13,551 10%
Rough exports $151 22% $1,188 -17%
Net imports $1,331 15% $12,363 14%
Net diamond account $236   ($1,410)  

Diamond Industry Stock Report

U.S. shares mainly higher, led by Blue Nile (+17%) but tempered by Kohl's (-7%). Far East shares unchanged, while Europe's were mixed as Damiani (-6%) and LVMH (+3%) were the biggest movers. India mainly lower, led by Classic Diamond (-12%). Mining shares all lower except Lucara (+3%) and Stornoway (2%). View the extended stock report.

  Oct. 30 Oct. 23 Chng.  
$1 = Euro 0.793 0.790 0.003  
$1 = Rupee 61.35 61.18 0.2  
$1 = Israel Shekel 3.77 3.77 0.00  
$1 = Rand 10.87 10.97 -0.10  
$1 = Canadian Dollar 1.12 1.12 0.00  
Precious Metals        
Gold $1,198.10 $1,232.30 -$34.20  
Platinum $1,239.00 $1,253.00 -$14.00  
Stock Indexes       Chng.
BSE 27,346.33 26,851.05 495.28 1.8%
Dow Jones 17,196.77 16,677.90 518.87 3.1%
FTSE 6,463.55 6,419.15 44.40 0.7%
Hang Seng 23,702.04 23,333.18 368.86 1.6%
S&P 500 1,994.63 1,950.82 43.81 2.2%
Yahoo! Jewelry 1,178.79 1,144.01 34.78 3.0%


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