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Rapaport Weekly Market Report 06/04/10

Jun 4, 2010 1:19 PM   By Avi Krawitz
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Between the Lines

Rough Market: Harry Winston Expects Mining Unit to Fluctuate

Harry Winston Diamond Corporation reported that its mining unit saw rough diamond sales drop 15 percent year on year to $48.9 million in the first quarter that ended on April 30, 2010. The decline came despite the recovery in prices seen in the market compared to a year ago, with the company explaining that lower production at its Diavik mine contributed to the sales decline.

Harry Winston said that excluding 0.4 million carats of diamonds sold from stock carried forward from the previous quarter, the prices it achieved rose 98 percent compared with a year earlier. the company held two rough sales between February and April.

Harry Winston owns a 40 percent economic interest in Diavik, with Rio Tinto holding the remaining 60 percent. Total production at the mine fell 12 percent year over year to 1.562 million carats during the three months that ended on March 31, 2010 “due to a planned lower volume of ore mined,” Harry Winston explained.

The companies are in the process of transitioning their operations at Diavik from open-pit to underground, which will extend the mine’s life beyond 2020. Underground mining was launched in March 2010 and open-pit mining is expected to be depleted by 2012.

Despite its positive outlook for both the diamond market in general and the rough segment, Harry Winston expects the results from its mining segment to fluctuate depending on the seasonality of production at Diavik, the number of sales attained in each quarter, rough diamond prices and the volume, size and quality distribution of Diavik production.

Wholesale: Positive Trends in Hong Kong’s Polished Trade

Hong Kong’s trade in polished diamonds showed a positive trend in the first quarter of 2010 as imports rose by 36 percent compared with a year earlier to $2.94 billion, while exports grew 24 percent to $2.17 billion. Historical data provided by the Diamond Federation of Hong Kong indicates that diamond activity in the municipality was less affected by the recession than other trading centers, as both polished imports and exports displayed relative stability (see graph below).

More importantly, the value of trade in the first quarter of 2010 was back at the levels observed two years ago. This gain was the result of improved volumes, as well as a recovery in prices. The average price of polished imports was $448.37 per carat in the first quarter of 2010, which was 24 percent higher than the comparable period of last year, and 9 percent above the first-quarter average for 2008.

Retail: First-Quarter Earnings Encouraging

The earnings season for the first quarter of calendar 2010 indicated that jewelry retail sales grew by about 12 percent from a year ago, but bear in mind that the 2009 period represented the low point of the global recession. Sales remain below 2008 levels, as can be expected, with a sample of the listed retail companies covered by Rapaport News showing that global jewelry sales remained 8 percent below those of the first quarter of 2008 (see table below).

Stand-out growth was seen in the high-end jewelry sector as sales at Harry Winston, LVMH Moët Hennessy Louis Vuitton and Tiffany & Co. rose 25 percent, 32 percent and 22 percent, respectively.

Significantly, Zale Corporation was the only brick-and-mortar retailer from the sample to register a sales decline as it continues to battle a turnaround, while underperformed in the online space.

Given the disparity between the three years, and particularly in light of the weaknesses observed in 2009, we believe that the second and third quarters will provide a better indication of how entrenched in recovery the jewelry retail market is ahead of the Christmas rush. Nevertheless, the first-quarter growth is encouraging.

Global Markets

United States: Confidence in the market has been rising in anticipation of the JCK Las Vegas show and on the back of improving retail sales. Bridal goods continue to uphold the market, with 1.00-carat, G-H, SI+ stones proving the most popular ring diamonds. Vendors are watching Vegas closely to assess what diamond trends are emerging in fashion jewelry. At wholesale, diamond shortages continue to prevail. There is strong demand for 3.00-carat, H+, SI+ goods, with shortages in these categories, while there is good demand for 0.90-1.50-carat, VS-SI1, E-H stones.

Belgium: The mood in the Antwerp market has improved, with positive sentiment about the JCK Las Vegas show lifting the general outlook. Still, traders are cautious, particularly given that goods shortages are apparent in the market across a variety of categories. There is a growing concern that larger manufacturers are opting to trade in rough rather than manufacture and that polished dealers are holding back goods in anticipation of higher prices. Given the shortages, dealers are content to hold onto goods if they don’t obtain their asking prices.

Israel: Trading is stable, with many waiting to assess the outcome of the Vegas show. Those who went to the show have kept their expectations low to avoid disappointment, but there is some hope that it will signal a recovery in the U.S. jewelry market. There is good demand for 1.00- to 1.50-carat, D-H, VS-SI, stones and prices in general appear to be stable. Rough trading in the bourse has slowed as high prices have deterred manufacturers from buying.

India: Local trading has slowed a bit, with many medium to larger companies attending the JCK Vegas show, but the market is active as summer vacations approach its end. There are high hopes for JCK, as sellers are expected to stay strong on prices on the back of good demand and anticipated further increases in the weeks to come. Exchange-rate volatility has fed some caution into the market, however. There is strong demand for melees, J+, SI-lower-pique goods and severe shortages for cheap, 0.02-carat, J+, SI-lower-pique stones. There is good activity in 1.00-carat stones across the board and 2.00-carat, J+, VS+ and pique stones, although these sizes have been impacted by the exchange-rate volatility. The rough market is stable, although many manufacturers are expecting price increases at next week’s Diamond Trading Company (DTC) sight.

China: The retail and wholesale markets remain stable, although trading is a bit quieter as is customary for this time of year. Online retail sales appear to have slowed more than those made at brick-and-mortar operations. There is still high interest in diamonds, as demonstrated by the popularity of the diamond exhibitions in the Belgium pavilion at the World Expo 2010 held in Shanghai. In general, there is good demand for 0.30- to 1.10-carat, D-J, VVS-SI, GIA-certified and preferably EX-cut stones, while demand is stable for parcel goods in 0.20- to 0.30-carat, H-J, VS-SI categories.

Hong Kong: Trading is stable, with demand being relatively good, given that it is now a traditionally quiet period of the year. There remains strong resistance from buyers, as there doesn’t appear to be any urgency to make purchases at the moment. There are shortages apparent in the high-color, SI categories in all sizes, but particularly in stones above 3.00 carats. Some are expecting the market to pick up toward the end of the month as vendors prepare for the June Hong Kong show. While this event is the smaller of the administrative region’s annual jewelry fairs, it brings in buyers from neighboring countries and India.

Quote of the Week

“Those who stand for nothing fall for anything.”

- Alexander Hamilton, U.S. founding father and its first Secretary of the Treasury.

Note: This article is an excerpt from a market report that is sent to RapNet members on a weekly basis. To subscribe, go to or contact your local Rapaport office. The writer can be contacted at


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Tags: Avi Krawitz, Antwerp, Avi Krawitz, Belgium,, China, Diavik, DTC, Exhibitions, GIA, Harry Winston, Hong Kong, India, Israel, JCK, Jewelry, LVMH, Production, Rio Tinto, Tiffany, United States, Zale
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