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Rapaport TradeWire April 12, 2013

Apr 11, 2013 6:00 PM   By Rapaport
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RAPAPORT NEWS SERVICE | April 12, 2013   www.rapaport.com | news@rapaport.com
 
 
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Rapaport Weekly Market Comment April 12, 2013

Polished diamond markets quiet with steady U.S. and Chinese demand. Rough selling at average 5% premium on secondary market, while increased supply calms price speculation. Cutters remain cautious and polished supply tight. Rapaport Melee Index +7% in 1Q 2013. Sotheby’s HK sells $61.4M (78.6% by lot) with round, 28.86ct., D, IF, 3X diamond selling for $6.9M (world record $239,532/ct.). Michael Hill sales +9% to $636M, same-store sales +2% for 9 months. U.S. Feb. polished imports flat at $1.5B, exports -8% to $1.5B. Japan’s Feb. polished imports +24% to $54M. JCPenney reappoints Myron Ullman as CEO. India’s Maharashtra State raises VAT on diamonds, precious metals to 1.1%.

RapNet Data: Apr. 11
     
Diamonds   982,794
Value $6,476,404,895
Carats   1,090,536
Average Discount -27.26%

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RAPAPORT ANNOUNCEMENTS
April
9-17
Tue-Wed
Rapaport
Rapaport Melee Auction
New York  & Dubai

View details.
April
16-24
Tue-Wed
Rapaport
Rapaport Single Stone Auction
New York & Israel

View details.

  QUOTE OF THE WEEK
  Now JCPenney doesn’t look survivable. It’s in the process of disappearing but there may be a way to stabilize it -- slow the pace of [spending], raise cash, sell stores, sell real estate -- the place is in complete catastrophe. The company needs a plan and to improve relationships with the financial community, suppliers and vendors.

Howard Davidowitz | Davidowitz & Assoc.

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The Rapaport Group is growing rapidly. If you wish to work with the best and brightest, join us. We have great opportunities for trading managers, gemologists, sales assistants, and entry level positions for our offices in New York, Antwerp, Mumbai, Dubai, and Shanghai. View jobs now.


INDUSTRY  
 
RMI +7% in 1Q13

The Rapaport Melee Index (RMI) for small diamonds increased 7% to 135.00 in the first quarter of 2013. While there has been a noticeable recovery since the third and fourth quarters of 2012, prices remain below last year’s when the RMI was 141.00. In the first quarter of 2013, prices showed consistent improvement and followed market confidence; however, there is concern that polished prices are being fueled by rough speculation rather than actual demand.

Rapaport’s first quarter Diamond Auctions sold over 130,000 carats for $25.1 million. More diamonds are being traded through the Rapaport auction platform even though there is a significant decline in second-hand recycled diamonds, with a 35% decline in gold sales due to lower gold prices.



 
De Beers Sight Estimate $650M

The De Beers April sight ended this past week with an estimated value of $650 million after ‎the company raised prices by an average of 3%. Some boxes, including stones ‎above 5 carats and 1 carat to 2 carat goods, increased by high single-digit percentages. ‎De Beers boxes continue to sell at an average premium of about 5% on the ‎secondary market. ‎ Sightholders expected a larger increase from De Beers, so speculation in the rough market has calmed since the sight closed. Biggest concerns ‎remain low profit margins achieved in manufacturing. As a ‎result, manufacturers are not increasing their output since the next two months ‎are traditionally a quieter period in the polished market. Watch more on the year to date sight total.



RETAIL & WHOLESALE  
 
Ullman Vows to Save JCPenney

Mike Ullman, JCPenney's rehired CEO, said his first priority would be to reconnect with the U.S. consumer in order to halt the retailer's financial blood bath. Ullman, who was tapped over the weekend to take the post he held from 2005 to 2011, vowed to relay JCPenney's strong product value message, which he said was lost during Ron Johnson's relatively short tenure. JCPenney will return to the high-low pricing model, stabilize gross margin and reintroduce couponing and discounting. Ullman expects to emphasize the value of merchandise with competitive offerings by the back-to-school season, which hits in August. He plans to allow the transformation of JCPenney's home goods department as planned by May, but then hold off on any further incorporation of ''stores within a store,'' which was one of Johnson's expensive initiatives. 
 


 
March Retail Sales Growth Falls Short

U.S. chain-store sales posted a modest gain of 1.6% year on year for the fiscal month of March, according to the International Council of Shopping Centers (ICSC). The comparable-store sales performance during the month, which included the Easter weekend, was far below ICSC Research’s expectations. The group blamed cooler weather across much of the U.S. for weak consumer spending. ICSC research anticipates that same-store sales in April will rise between 2% and 3%.



 
Sotheby's Jewels Sale Nets $61M

Sotheby’s Hong Kong sale of magnificent jewels and jadeite generated $61.4 million with high-end white diamonds dominating the top lots. ‎The auction sold 78.6% by lot with the top lot an un-mounted brilliant cut, 28.86-carat, D, flawless diamond that sold ‎for $6.9 million, or a record $239,351 per carat, to a private Asian buyer. ‎The second top lot was pendent earrings weighing 8 carats each, which sold for $2.8 ‎million, or $239,352 per carat, also to a private buyer from Asia. ‎



 
Michael Hill Sales +9%

Michael Hill International reported that sales for the first three quarters of the fiscal year, which included actual totals for the first eight months plus preliminary results for March, rose 8.8% year on year to $363 million. Same-store sales rose 2.2 percent. By region, stores sales rose 11.4% in Australia to $233 million, while same-store sales increased 4.2 percent; in New Zealand, revenue climbed 3.6% to $74 million and same-store sales were up 3.1% and in Canada, sales surged 20.6% to $33 million with comparable-store sales only 2.8% higher. In the U.S., revenue and same-store sales rose 7.7% to $7.7 million.



 
Kendra Scott Opens New Boutique

Kendra Scott plans to open at Fashion Island in Newport Beach, California on April 15. The boutique's façade will boast the signature Kendra Scott medallion, while the interior will feature a ''Danielle'' display table and space for in-store entertaining with a full kitchen. The boutique will include the signature Kendra Scott Color Bar, with a 55-inch touch-screen display monitor, iPads and a kaleidoscope of 26 gemstones and 23 jewelry silhouettes to provide an interactive experience to guests.



 
H.Stern Opens Stand-Alone Store

H.Stern opened its first stand-alone jewelry boutique in the U.K. on Sloane Street in London. H.Stern is also located at Harrods in the fine jewelry room. The new H.Stern boutique showcases the brand’s signature jewelry collections such as Stars (Stern means star in German and is H.Stern’s visual icon), Fluid Gold, Moonlight and Copernicus. The space covers 156 square meters and incorporates what the retailer considered to be elegant curves for its furniture and interior design, to reveal a feminine silhouette of the "S" in the H.Stern logo.



 
Maharashtra's VAT Rises to 1.1%

India’s Maharashtra State government raised the rate of value added tax (VAT) for ‎diamonds and precious metals sold in the state on April 1 from 1% to 1.1%. The directive continues through March 31, 2014. The same increase applies to precious metals, including gold, silver, platinum, ‎osmium, palladium, rhodium and ruthenium, as well as articles made from precious metals of fineness not less than 50%.



 
Zales Bumps Tiffany on Affluent Survey

Post-recession growth has not been uniform across income segments, according to Unity Marketing, which determined that it is the top 20% of earners, or 24.2 million households, who are driving the recovery. But even more interesting from the data is that ultra-affluents, or those earning $250,000 or more annually, are spending less on luxury goods, especially jewelry and watches.

Spending increases are coming from those making $100,000 to $249,999 per year, or a group Unity labels the HENRYs -- high earnings, not rich yet -- and they account for 21.8 million households. In Unity Marketing's latest analysis, Luxury Report 2013, ultra-affluents are behaving more like the HENRYs as they have reduced purchases on luxury items and even the high-income ultras are trading down to less premium brands. One such example the report noted was that affluent consumers chose Zales over Tiffany this year as ultra-affluents' jeweler of choice.

Furthermore, in 2012, Unity found that only 58.4% of affluents purchased jewelry this past year, down from 75.7% in 2011; and 70.6% purchased watches compared with 88.6% in 2011. Double-digit declines in spending were also observed for clothing, fashion accessories and premium beauty products, according to Unity Marketing. The group warned marketers to prepare for selective purchases by affluents as these consumers make tradeoffs to maximize the emotive and luxury return on that investment.



 
Sterling, Zale Pick Mediator

Plaintiff Sterling Jewelers and defendant Zale Corporation selected a mediator in the case challenging Zale's Celebration Diamond as the most brilliant in the world. The rival retailers picked Charles Lyon, of Calfee, Halter & Griswold of Cleveland, Ohio to head up the negotiations. An initial conference is planned for May 2. 




 
OECD Heads Up Due Diligence Guidance

The Organization for Economic Cooperation and Development (OECD) is weighing projects intended to support due diligence guidance for the responsible supply chain of minerals, including diamonds, from conflict-affected and high-risk areas of the world. Various parties, including the Responsible Jewellery Council (RJC), will meet in Paris to examine case studies, discuss activities underway from stakeholders and other proposals to improve artisanal mining. RJC extended the invitation to industry members to learn more or become involved by contacting Fiona Solomon, the director of RJC's standards development.

RJC is a member of the OECD-hosted multi-stakeholder Interim Governance Group for due diligence guidance along with the London Bullion Market Association (LBMA), the World Gold Council (WGC), civil society and governments.



MINING  
 
Dominion Closes Ekati Sale

Dominion Diamond Corporation, formerly Harry Winston Diamond Corporation, completed its planned acquisition of the Ekati diamond mine, which included associated diamond sorting and sales facilities in Yellowknife, Canada and Antwerp. Ekati consists of a core zone, which includes the current operating mine and other permitted kimberlite pipes, as well as a buffer zone, an adjacent area hosting kimberlite pipes having both development and exploration potential. Dominion Diamond purchased the assets from BHP Billiton for $553 million and it officially marks the end of BHP's diamond investment. 

Ekati held cash of approximately $65 million on the closing date and two sales cycles (10 weeks) of diamond inventory either in the process of being sorted and valued or available for sale. Dominion Diamond expects to release a detailed mine plan for Ekati on or before April 24.




 
ZMDC Blames Closed Mines on Funding

Zimbabwe’s Mines & Mining Development Deputy Minister, Gift Chimanikire, accused the Zimbabwe Mining Development Corporation (ZMDC) of "gross incompetence” over its failure to reopen closed mines. However, ZMDC’s managing director, Jerry Ndlovu, claimed it is inhibited from reopening mines due to limited lines of credit since Western sanctions restrict cash flow, and due to the exorbitant financing requirements of refurbishing mines.

In other news, the government denied it had issued diamond exploration licenses in the Bikita, Masvingo area, despite contrary reports. It also remained unaware of how Nan Jiang Africa Resources had set up to mine diamonds in the region without a license or approval.

Meanwhile, Ahmed bin Sulayem, the executive chairman of the Dubai Multi Commodities Centre (DMCC), chided Western countries for placing sanctions on Zimbabwe, saying sanctions were denying Zimbabwe its “lifeblood.” He was addressing a DMCC precious metals conference underway in Dubai.



 
CAR Diamonds Funded Rebels

Some diamond miners in Central African Republic (CAR) told Radio France Internationale that they funded the Seleka Coalition, which seized power and overthrew President Francois Bozize on March 24. Traders claimed that Bozize created enemies by seizing their diamonds and cash since 2008, none of which has been returned to the diamond miners. While Bozize fled to Cameroon this past week, no one has acknowledged where the seized goods reside. Some traders confessed that they were charged with going into Sudan to sell rough diamonds and their stockpiles in CAR were also confiscated.



 
UN Progresses on Security in Cote d'Ivoire

Security remains a priority in Côte d’Ivoire ahead of local elections on April 21 and following an outbreak of violence in March. The UN Operation in Côte d’Ivoire (UNOCI) will assist with security in the region, as well as address the sources of this new round of conflict. Blue helmets have deployed to Petit Guiglo and are supporting Ivorian forces and protecting civilians through ground and air patrols. UNOCI provides technical support to the polls through the independent electoral commission. It has also supported the reunification and stabilization of Cote d'Ivoire, which remains under a rough export ban by the Kimberley Process. Economic growth in Cote d’Ivoire is predicted to reach 9% this year.



 
Aikhal Reaches Design Capacity

ALROSA’s Aikhal underground mine has reached its design capacity of 500 thousand tonnes of ore per year. Aikhal is expected to produce 2.5 million carats of rough diamonds per year at full capacity. The Aikhal pipe is one of ALROSA's oldest deposits and contains more than 14 million carats of rough diamonds, with inferred and indicated resources of more than 54 million carats, according to a 2012 JORC-compliant audit.



 
Zambia Constrains Gemfields

Gemfields is seeking an exception to Zambia's rule of selling emeralds in local currency, and has engaged the Bank of Zambia to permit trading in U.S. dollars. Zambia prohibited quoting and pricing gems and other items in foreign currency almost one year ago. Gemfields, which operates the Kagem emerald mine in Zambia, would invoice outside buyers in dollars and Zambian buyers in local currency.

Meanwhile, Gemfields is also facing a possible ban of even selling its gemstones outside of Zambia. Forcing all buyers to come into Zambia for an emerald auction would be detrimental and prevent the firm from freely selling goods on the open market, according to a note the company sent to shareholders. Gemfields had already agreed to include Zambia as one of several auction destinations this year.



 
Renard 65 Valuation Returns $250 Per Ct.

Stornoway Diamond Corporation reported the Renard 65 bulk sample of rough diamonds, valued by WWW International Diamond Consultants, held an average price of $250 per carat. The diamond price model for Renard 65 is now $180 per carat, with a high sensitivity of $203 per carat and a minimum sensitivity of $169 carat. The bulk sample valuation included two higher-value stones, a 9.77-carat, G diamond of $8,500 per carat and a 6.40-carat, F diamond of $5,900 per carat.



 
Botswana Diamonds Adds License

Botswana Diamonds added another license to its option agreement with a Mozambican company, Morminas, a subsidiary of the EIP Group of Portugal. This brings the total to three license blocks that are being evaluated on the Save River in Mozambique, close to the Zimbabwean border. The Save River runs southeastwards and drains from the Marange diamond fields. The agreement stipulates a six-month exclusive period during which Botswana Diamonds will review the available data on the licenses and undertake preliminary exploration.



ECONWATCH  
 
Diamond Industry Stock Report

pastingU.S. retailers were mostly higher, Movado and Signet (+5%), Sotheby's (+7%) and Zale (+9%) led the way. European and Indian shares were mixed and mostly unchanged. Mining shares were trading lower, Rockwell, Shore Gold and Gemfields all down by more than 10%. View the extended stock report.
$1 = Euro 0.760 0.770 -0.010  
$1 = Rupee 54.27 54.89 -0.6  
$1 = Israel Shekel 3.63 3.62 0.01  
$1 = Rand 8.90 9.15 -0.25  
$1 = Canadian Dollar 1.01 1.01 0.00  
         
Precious Metals        
Gold $1,561.00 $1,553.70 $7.30  
Platinum $1,532.00 $1,523.00 $9.00  
         
Stock Indexes       Chng.
BSE 18,542.20 18,509.70 32.50 0.2%
Dow Jones 14,864.83 14,606.30 258.53 1.8%
FTSE 6,416.14 6,344.12 72.02 1.1%
Hang Seng 22,101.27 22,337.49 -236.22 -1.1%
S&P 500 1,593.35 1,559.89 33.46 2.1%
Yahoo! Jewelry 1,196.04 1,174.70 21.34 1.8%


INDIA MARKET REPORT  
 
Polished and Rough Trading Activity

The polished market is weaker from comparatively lower demand and higher asking prices. Buyers are still selective, with De Beers sightholders accounting for the majority of activity. Good activity for VS/SI category, 0.30ct. to 0.69ct. Tight liquidity prevails and the jewelry market is weak.   Read the full report.  




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