Rapaport Magazine

Positive Sentiments Prevail

Trade Report

By Avi Krawitz
RAPAPORT... Sightholders were somewhat surprised that the Diamond Trading Company (DTC) kept prices stable at the January sight. They were expecting the De Beers sales and distribution unit to raise prices after the better-than-expected Christmas season.

DTC spokespersons explained that while early reports indicate a positive holiday period, the company has yet to make a complete assessment of the season. As a result, anticipation grew that DTC rough prices will rise next time around, at the February sight, which further increased the already-high demand for rough from buyers who want to get their hands on supplies before the price hike. This expectation was reinforced by the high-single-digit premiums fetched on DTC boxes selling immediately after the January sight, with the Indian goods selling at premiums between 12 percent and 14 percent.

The strong demand was confirmed by Diamdel, the De Beers sales arm to the secondary market, which reported “a very strong level of demand” during the fourth quarter, after recording the highest level of repeat participation in its online auctions during the period. “This, combined with other indicators, makes us bullish about demand prospects for quarter one of 2011 as we enter the first sales cycle of this year,” said Neil Ventura, Diamdel’s chief executive officer (CEO).

Similar sentiment was expressed by other rough producers, including Petra Diamonds and Gem Diamonds, both of whom reported strong sales growth during the fourth quarter of 2010, driven by higher demand and substantial increases in rough prices.

Most significant were the gains at the Letseng mine, where Gem Diamonds launched its in-house marketing of production in October, helping prices rise by 74 percent year on year to $3,291 per carat. Gem Diamonds negotiated a 25 percent hike in the rare yellow stones from its Ellendale mine that it sells exclusively to Tiffany & Co, boosting average prices of these goods to $3,482 per carat. The company is planning a review of its “Tiffany Yellow” prices again in March. The average price of the company’s commercial goods from Ellendale rose 72 percent to $189 per carat (see graph on opposite page, top).

Playing Catch-Up

Clifford Elphick, CEO of Gem Diamonds, noted that strong diamond jewelry sales in the U.S. during the Christmas season, as well as continuing growth of diamond jewelry sales in China and India, combined with the fundamental supply imbalance, contributed to the significant price increases seen in the rough market. He noted, however, that whereas the feeling before Christmas was that rough prices were too far ahead of the equivalent polished, feedback in January was that polished was undervalued and needed to “and is beginning to” catch up to the rough.  

An uptrend in polished prices was evident in January, as it was in December. The average RapNet Asking Price Index (RAPI) for certified diamonds rose 1.3 percent during the month through January 24. The average price for 3-carat stones increased 0.3 percent during the month, while prices for 1-carat stones rose 2.6 percent and prices for 0.5-carat stones grew by 1 percent (see graph at right).

Still, tight profit margins on polished goods remain a prime concern for manufacturers, who expect an aggressive rough market in the first quarter of this year. DTC CEO Varda Shine warned against speculation and hinted that such financial recklessness may work against companies when DTC chooses its sightholders for 2012. “More than ever before, we are living in an uncertain world,” Shine said during the January sight. “Our watchword has to remain ‘responsibility.’”

While Diamdel noted that rough demand was spread across geographic areas, Indian buyers continue to dominate the market. India’s rough imports rose 25 percent year on year to $2.9 billion in the fourth quarter, and grew approximately 66 percent for the full year of 2010 to $11.34 billion. Indian demand was further evident in reports that companies in Surat had bought rough worth approximately $250 million from the Marange fields, and that they were awaiting delivery, pending final Kimberley Process (KP) approval.

Polished Trade Gains

Despite the anticipation for higher rough prices, buying was spurred by demand further along the pipeline, as shortages of polished goods were reported in the various centers. One Israeli manufacturer reported shortages across the board, but especially for expensive, high-end stones. Reports from India indicated shortages in stars and melee goods, as well as 1-carat, lower-color stones. Polished exports from the major manufacturing and trading centers — India, Israel and Belgium — all increased significantly from 2009, through 2010 (see chart at left).

Fourth-quarter gross polished exports, before returns, from India rose 49 percent to $6.14 billion. From Israel, they increased 27 percent to $3.46 billion, and from Belgium, they grew 31 percent to $3.02 billion. The increases were stimulated by a recovery in polished buying in the U.S., where polished imports through October and November were up 48 percent year on year to $3.35 billion. December data was not published by the U.S. Commerce Department at press time. Polished trade during the first 11 months of 2010 approached prerecession levels (see chart on opposite page).

 Similarly, polished imports to China, through the Shanghai Diamond Exchange (SDE), doubled to $313 million in December, while Japan’s polished imports through October and November grew 11 percent to $132 million.

These trends continued into January as manufacturers and polished dealers gained confidence from the positive reports emanating from the U.S. market and from the expectation of jewelry sales to Far East buyers in advance of the Chinese New Year, which began on February 3.

Tiffany & Co. reported record sales for the November to December period and said growth was spread across all regions and across most product categories. Sales were particularly strong in Tiffany’s fine jewelry collections, diamond engagement rings and fashion gold jewelry, with limited growth in silver jewelry sales. Tiffany’s largest competitor, Signet Jewelers, also reported good growth during the period in the U.S. and singled out its higher-end Jared stores as a strong performer. (See page 24 for full holiday retail report.)  

Good Times…Maybe

In the aftermath of a profitable holiday season, most professionals along the diamond pipeline expressed optimism in January that the market would remain strong in the short term. At the same time, they remain aware that economic uncertainty persists, and that growth might not be as strong throughout the year as it was going into the year.

Shine noted that the diamond industry recovery in 2010 was largely assisted by restocking that took place throughout the year as the world climbed out of recession, and that growth this year would likely be slower. “In 2011, we are likely to see much less benefit from restocking and we face an uncertain global economy,” she explained, adding that it is because of the unpredictable environment that the industry needs to focus on the business approaches required to succeed.

The industry appears ready to heed her words. After a good start to the year, many are pushing to continue the positive momentum and they say they are ready for any surprises the year may bring.

Article from the Rapaport Magazine - February 2011. To subscribe click here.

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