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Rapaport TradeWire June 29, 2012

Jun 28, 2012 6:00 PM   By Rapaport
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RAPAPORT NEWS SERVICE | June 29, 2012   www.rapaport.com | news@rapaport.com
 
 
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Rapaport Weekly Market Comment June 29, 2012

Polished prices coming under increasing pressure as poor Hong Kong show disappoints suppliers. Tight liquidity, plummeting rupee and irresponsible Indian government policies destroying Indian demand. DTC sightholders, tired of losing 10% to 20% on overpriced rough, are refusing boxes. Irrational, exploitative rough prices expected to decline as cutters run out of money. U.S. consumer confidence falls to a 5-month low of 62 in June. Chow Tai Fook FY 2012 revenue +61% to $7.3B, net income +79% to $847M. Rockwell Diamonds 1Q revenue -24% to $5.9M as prices slump 42%. Itzu Kaszirer passes away at age 90.

RapNet Data: June 28
     
Diamonds   947,992
Value $6,102,318,320
Carats   1,003,455
Average Discount -27.04%

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  QUOTE OF THE WEEK
  We note that there is a problem of transparency in Zimbabwe's diamond mining sector's revenues...Transparency is a political issue but it is also a technical issue that demands proper capacity to carry out due inspections. Therefore, if so requested by the government of Zimbabwe, the E.U. could provide the necessary technical assistance to update, upgrade, complete the national installed capacity to carry out proper inspections.

Aldo Dell'Ariccia | E.U. Ambassador

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INDUSTRY  
 
DTC to Allow Deferments

The Diamond Trading Company (DTC) informed  sightholders that they may reschedule up to 50%  of their in-plan-‎target for July to any other sight in the current intention to offer (ITO) period that ends March ‎‎2013. Sightholders had also been deferring goods in June  due to diminished demand for rough and high DTC prices.

Des Kilalea, an analyst with RBC Capital Markets, said he expects rough prices will ‎remain under pressure in the near-term, given the lack of liquidity in the cutting centers.  RBC estimates that De Beers sales, including at DTC, its retail division and its industrial ‎synthetics business, fell 15% year on year to around $3 billion in the first half of the ‎year. Rapaport estimates that DTC sales declined by 19% to approximately $2.83 ‎billion during the period. ‎



 
HK Show Disappoints Dealers

The June Hong Kong Jewellery & Gem Fair failed to signal significant Far East demand ‎as dealers in round diamonds left the show disappointed. ‎Traffic and trading was lower than previous shows and this soured the mood of dealers. Buyers were looking for SI goods while better-quality VVS stones were ‎still proving difficult to sell. Exhibitors suggested that suppliers were prepared to lower prices in order to spur sales of rounds. But the show was better for dealers in fancies, even if trading was below levels seen at ‎the June show of 2011.‎

Inter-dealer trading was significantly reduced from one year ago as Indian buyers were not a ‎significant presence at the show. While buyers from mainland China attending the fair were there to shop around, however, they did not buy significant quantities. ‎Dealers in the region may be holding ‎large inventories of goods and therefore can hold back from buying, while economic sentiment remains so weak. ‎



 
Consumer Confidence Remains Weak

U.S. consumer confidence in June was at 62 points (1985=100), according to The Conference Board, which was up from 58.5 points one year ago. The consumer Expectations Index was flat year on year at 72.3 points and the Present Situation Index rose to  46.6 points from 37.6 points in June 2011. Even though consumer confidence was slightly more positive from one year ago, it was  weaker than the readings from May and represented a fourth consecutive monthly decline. Consumers held a slightly more pessimistic view on the economy for the short-term  and expectations for higher income declined.



 
E.U. Tour of Diamond Fields Ends

E.U. Ambassador Aldo Dell'Ariccia led a delegation of Western diplomats on a two-day tour of Zimbabwe's Marange diamond fields and said it was impossible to determine how much of the country's diamond revenue reaches government coffers. The country's Finance Minister Tendai Biti has told Parliament that the government has recieved about $25 million so far this year, much less less than the anticipated $600 million. Dell'Ariccia said, "For the moment, the benefit of diamonds is not translating to the betterment of lives for the people."



RETAIL & WHOLESALE  
 
Top Emerging Online Retail Markets

WATCH NOW: As e-commerce sales skyrocket across the developing world, building an online presence is a low-risk way to test new markets if done right, according to A.T. Kearney. The group published its inaugural  E-Commerce Index, examined the top 30 countries for online retail sales potential and rated emerging markets by retail-specific variables. China, Brazil, Russia and Chile were the top, but overall many Middle Eastern and Latin American countries proved to be strong contenders.



 
Chow Tai Fook Profit +79%

Chow Tai Fook reported that revenue rose 61%  year on year to $7.3 billion, while cost of sales jumped 60% to $5.2 billion for the year that that ended on March 31. Same-store sales increased 40.3%, gross profit margin increased to 29.1% from 28.3%  one year earlier. Retail sales accounted for about 83% of total revenue with wholesale sales representing 17%.  Net income surged 79% to $847 million. Chow Tai Fook had 1,627 points of sale at the close of its financial year, up from 1,358 one year earlier. Gold product sales represented the bulk of revenue during the year at $3.8 billion  and gem-set jewelry was the second strongest category at $2 billion.



 
Birks & Mayors Profit at $219K

Birks & Mayors Inc. reported net sales rose nearly 12% to $302.2 million for its fiscal year that ended on March 31. Comparable-store sales rose 5%. Net profit improved to $219,000 from a net loss of $7.7 million. The retailer observed an increase in the average  sales transaction during the year, a cash benefit from a weaker U.S. dollar and a gross profit margin improvement of 114 basis points.



 
NRF to Fight Health Care Law

The National Retail Federation (NRF) vowed to redouble its efforts to repeal the Affordable Health Care Law that was upheld by the Supreme Court, citing it would continue to work with regulators to smooth implementation for retailers and businesses alike. The NRF contended that the law has many shortcomings and wrongly focuses more on penalizing employers and the private sector than reducing health costs.



 
FTC Seeks Comment on Jewelry Guides

The Jewelers Vigilance Committee (JVC) reminded the trade that as part of  the Federal Trade Commission's (FTC) systematic review of rules and guides, the government agency is seeking public comment on revisions to the jewelry guides.  The deadline for comments is August 27. Public comments and concerns about the guides can also address specific issues such as the marketing of lead-glass-filled composite stones --hybrid or composite rubies for example-- use of the word "cultured" in marketing laboratory-created diamonds and gemstones, disclosures relating to freshwater pearls and treatments to pearl products, and content descriptions of alloys and alloy products containing precious metals in amounts less than the minimum thresholds currently reflected in the guides. The FTC completed its last comprehensive review of the guides in 1996 and has modified them four times since, according to JVC.



 
RJC Seeks COP Comment

The Responsible Jewellery Council (RJC) seeks public comment on its Code of Practices (COP), the standards against which all members must demonstrate independently verified conformance to achieve certification. The first of at least three scheduled public comment periods is open until September 10,  2012. The COP is the cornerstone of RJC’s certification program and sets standards for responsible business practices for companies in the jewelry supply chain.



 
U.S. Marshals to Auction Jewelry

The U.S. Department of Justice's U.S. Marshals Service is conducting a live and online simulcast auction to sell nearly 400 lots of fine jewelry, watches, gold, diamonds and other items on June 30. The auction starts at 10 a.m. (MDT) at the Colorado Convention Center in Denver, with the online simulcast at www.txauction.com. A catalog with the expected price range for each item is available at that same website and a public preview is scheduled for June 29 from 10 a.m. to 3 p.m. in Denver. All items being sold were seized from federal court cases nationwide and are now forfeited to the government.  Proceeds generated from the sale are used to compensate victims of crimes and supplement law enforcement programs.



 
Antwerp Police Arrest Four

Antwerp police arrested four people  in connection with alleged bribery at HRD Lab headquarters over improper grading practices. Police have not revealed any names. HRD conducted an internal investigation of diamond graders who were allegedly paid to prepare certificates falsifying the value of the diamonds. As a result, four people were asked to leave in April. HRD then turned its results over to Antwerp police who decided to pursue it further.

Two of the arrests were diamond dealers and one was a grader allegedly active in the bribery, while the fourth was alleged to be a middleman. HRD refused to comment on the ongoing investigation.



MINING  
 
De Beers Canada Posts Year in Review

De Beers Canada released its 2011 ''Year in Review,'' summarizing the company's performance in the areas of operations, finance, sustainability and contributions to Canada and the communities in which it operates. This year, the company detailed its Snap Lake mine in the Northwest Territories and the Victor mine in northern Ontario among other projects. In 2011, De Beers Canada employed 1,023 people and injected more than $500 million directly into the Canadian economy. At Snap Lake, De Beers Canada spent $161 million on local goods and services with $110 million of the amount going directly to northern businesses, and $40 million buying these services from Aboriginal suppliers. At the Victor mine, $101 million was spent on goods and services and $57 million worth was supplied by Aboriginal businesses.



 
Namakwa to Raise $55M

Namakwa Diamonds expects to raise approximately $55 million after shareholders approved issuing more shares. Funds were expected to pay down debt and  provide working capital. The diamond-mining junior expects to repay approximately $45 million in debt.

Namakwa's largest shareholder, Jarvine Limited, approved the share offering and agreed to subscribe for all of the shares if other qualifying shareholders don’t subscribe.



 
Rockwell 1Q Sales -24%

Rockwell Diamonds reported revenues dropped 24%  year on year to $5.9 ‎million during the first quarter that ended May 31, as rough diamond prices slumped ‎from weaker demand. The volume of sales rose 30%, however, to 6,234 carats while the ‎average price of the goods sold fell 42% to $944 per carat. ‎Production from four recovery projects reached 6,116 carats, or more than twice the number from one year ago.   At the company's Saxendrift mine, the number of carats rose 26%  year on year to 2,126. Rockwell added 1,118 carats from its  Saxendrift bulk x-ray and 1,222 carats from its Tirisano mine, both recovery projects were not online one year ago. The Klipdam mine's production rose 51% year on year to 2,768 carats.



 
Kennady Diamonds to List in July

Mountain Province Diamonds Inc. announced that, subject to final approval of the TSX Venture Exchange, shares of Kennady Diamonds Inc. will commence regular trading on July 10. Mountain Province will transfer its Kennady North diamond property and working capital in the amount of approximately $3 million to Kennady Diamonds and distribute the shares of Kennady Diamonds to Mountain Province shareholders on the basis of one Kennady Diamonds share for every five shares of Mountain Province held by shareholders. Once Kennady Diamonds is listed on the TSX-V, the company intends to pursue a listing on the OTCQX in the United States.



 
Global Witness Finds Diamonds Funding Military

Global Witness called for urgent action to prevent a businessman in China from financing Zimbabwe's President Robert Mugabe's military regime.  According to the group,  Zimbabwe’s Central Intelligence Organisation (CIO) received financing from Hong Kong-based businessman, Sam Pa, at the same time that the CIO is alleged to be engaging in a campaign to discredit key members of Mugabe's political opposition.

CIO members jointly control Sino Zimbabwe Development (Pvt.) Ltd., a diamond, cotton and property development company in Zimbabwe. Pa, their partner, is a prominent member of the Queensway Syndicate, a network of companies with a track record of negotiating opaque resource for infrastructure deals across Africa, according to Global Witness. The NGO also exposed that a Zimbabwean military lawyer owns half of Anjin Investments (Pvt.) Ltd., the biggest diamond company in Zimbabwe’s Marange diamond fields, on behalf of Zimbabwe’s Ministry of Defence. Pa did not respond to the group's request for comment.



ECONWATCH  
 
Diamond Industry Stock Report

The dollar proved stronger this week, while gold and platinum sank. Shares in nearly all U.S. and E.U. diamond retailers dropped, Zale (+5%) and Damiani (+2%) were the exceptions. Indian shares were moderatly higher, but strong gains for  Goldiam (+17%) and Suashish (+11%). Mining shares tumbled by mid-single digits except for Namakwa (+5%). Read the extended industry stock report for this past week.
  June 28 June 21 Chng.  
$1 = Euro 0.800 0.797 0.003  
$1 = Rupee 56.82 56.28 0.5  
$1 = Israel Shekel 3.94 3.89 0.05  
$1 = Rand 8.41 8.38 0.03  
$1 = Canadian Dollar 1.03 1.03 0.00  
         
Precious Metals        
Gold $1,554.90 $1,565.70 -$10.80  
Platinum $1,385.00 $1,435.00 -$50.00  
         
Stock Indexes       Chng.
BSE 16,990.76 17,032.56 -41.80 -0.2%
Dow Jones 12,602.26 12,573.57 28.69 0.2%
FTSE 5,493.06 5,566.36 -73.30 -1.3%
Hang Seng 19,025.27 19,265.07 -239.80 -1.2%
S&P 500 1,329.04 1,325.51 3.53 0.3%
Yahoo! Jewelry 889.64 905.83 -16.19 -1.8%


INDIA MARKET REPORT  
 
Polished and Rough Trading Activity

Polished trading is very quiet and the dollar reached new highs against the rupee; furthermore, liquidity is very tight but there is ample supply of goods in the rough market.    Read the full report.




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