Rapaport Magazine

Solid Start to 2012

The first-quarter trade show season proved positive, even as business was not booming for the diamond industry. Most seem content to let the beginning of the year pass by without too much concern.

By Avi Krawitz
RAPAPORT... Market sentiment improved in March as trading at the Basel show continued the positive momentum set in Hong Kong the previous month. That’s not to say that the diamond trade is booming. Of course, caution will dictate market conditions as long as the global economy remains restless.

But, stability has set in and confidence in the diamond trade has improved from the lulls of the second half of 2011, driven by steady demand in the Far East and the U.S. In the Far East, retailers and wholesalers have depleted the inventories they built up through speculative buying in the first half of 2011 and they are starting to buy again for inventory — this time without the speculation. While they are pushing their price points, they are also careful not to allow prices to drop significantly because they are afraid that this might impact consumer confidence. Diamond suppliers, in turn, are holding their prices firm.

Prices were therefore largely stable in March, with the RapNet Diamond Index (RAPI) for 1-carat stones rising .3 percent during the period March 1 to March 26. The RAPI for .30-carat diamonds rose 1.5 percent, and the RAPI for .50-carat stones fell .5 percent. The RAPI for 3-carat diamonds fell by a slight .2 percent during the period (see chart on opposite page, top).

For the first quarter of 2012, prices for 1-carat diamonds fell 3.6 percent, with the sharpest declines taking place from mid-January until late February, when stability set in. As a result, the industry managed to get through the quarter relatively unscathed and many predict continued stability in the second quarter before the market picks up again toward the latter half of the year — barring any major negative economic event that would direct the market otherwise.


While demand has been driven by improvements in the consumer centers, trading in the cutting centers remained uncertain for varying reasons. In Israel, confidence was boosted by the one-month suspension of the investigations into alleged tax evasion taking place in the bourse, but dealers were still in the dark regarding what would evolve after the month concluded, which was approaching at press time.

Israel’s trade of diamonds slumped in the first two months of the year, largely as a result of the investigations. Polished exports fell 47 percent year on year to $705.7 million, while rough exports dropped 44 percent to $429.3 million. Total diamond imports were down 24 percent to $1.14 billion through January and February.

More significantly, India’s domestic trade has been impacted by a combination of exchange rate volatility and the new 2 percent import duty on polished diamonds introduced in mid-January. As a result, India’s polished diamond imports plummeted by 80 percent to $476 million in February, while its polished exports fell 54 percent to $1.44 billion (see chart at right, bottom).  

Proposals in India’s state budget for 2012 to further increase the import duty on gold, and to introduce an excise duty on unbranded jewelry, sparked protests in the industry, with jewelry retailers declaring a strike in mid-March, which remained unresolved at press time (see India Market Report on page 64).  


Demand in India has been driven by the export market, with buyers from the Far East, Israel and the U.S. actively shopping for goods in Mumbai. Manufacturing in Surat has been maintained with a steady supply of rough, particularly the new supply from Zimbabwe’s Marange mines. While some have expressed concerns that the Zimbabwe goods, which remain sanctioned in the U.S. and the European Union (EU), will cause an oversupply of rough in the market, most agree that they will only impact the lower end of the market.

Rough premiums improved toward the end of the month in advance of the March Diamond Trading Company (DTC) sight, which was ongoing at press time. De Beers curbed its supply during the first quarter, taking advantage of the period of market caution to carry out maintenance at some of its mines.

Jim Gowans, chief executive officer (CEO) of Debswana, which had production of 22.89 million carats in 2011, accounting for about 73 percent of De Beers total output, told Rapaport Magazine that the company is tailoring to the market. “The market is very sensitive at the moment so if we ramped up to 25 million carats, I believe that would have a detrimental impact on the market,” he said. “It would mean an oversupply, which would result in prices softening.” Gowans said Debswana is aiming for production of about 24 million carats in 2012 and positioning itself to ramp up its operations only toward the end of the year, “when the market is expected to be more robust.”

DTC’s first two sights of this year therefore fell below 2011 levels (see chart at left), with estimated sales in January and February down 14 percent to $1.25 billion. Conversely, ALROSA reported that its diamond sales rose 21 percent to $694 million in the first two months of the year.

Clifford Elphick, CEO of Gem Diamonds, reported that the company has witnessed a continued moderate strengthening of rough prices at sales conducted so far in 2012 at its Letšeng and Ellendale mines. He reasoned that reports received about the November to December 2011 retail season in the U.S. indicated that there was growth in demand for diamond jewelry that led to ad hoc restocking in the manufacturing centers at the beginning of 2012.


Financial reports published by three of the major jewelry retail companies for the three months that ended January 31, 2012, indicated mixed results for the season (see chart at right). Tiffany & Co. missed expectations, with sales growth of 8 percent to $1.2 billion, while Signet Jewelers saw its sales grow 7 percent to $1.35 billion. Zale Corporation reported sales rose 6 percent to $663.8 million. Growth was largely in line with inflation as the U.S. consumer price index (CPI) for jewelry was up 8.2 percent year on year to a record 185 points in January before settling back to 182 points in February.

Still, many were encouraged by signs that the U.S. consumer environment is slowly improving, with Commerce Department data showing that retail sales rose 1.1 percent in February. The Federal Reserve noted that the economy has been expanding moderately and that labor conditions have improved, but cautioned that unemployment, at 8.5 percent in January, remains elevated. Federal Reserve Chairman Ben Bernanke added that further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses.

While diamond traders were encouraged by the U.S. sentiment, they continued to express greater concern for the effect that the European crisis would have on the market. With the first quarter complete, the diamond market is expecting the second to present much of the same stable-but-cautious trading prospects — while hoping to avoid any dramatic events — helping the mood among traders to slowly improve month by month.

Article from the Rapaport Magazine - April 2012. To subscribe click here.

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