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Rapaport TradeWire May 11, 2012
May 10, 2012 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
May 11, 2012
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TRADE ALERT: Indian Reserve Bank orders all foreign currency holders to convert 50% of their balances to rupee in reckless attempt to control plunging rupee. Recent irresponsible government actions include retroactive taxation and penalties, import taxes on gold and diamonds and on/off excise taxes. Out of control Indian government now posing serious threat to diamond market liquidity. Petra Diamonds 3Q revenue +87% to $98M, production +126% to 622,509 cts. Blue Nile 1Q revenue +4% to $83M, net income -94% to $154K. U.S. 1Q polished imports -7% to $4.8B. Hong Kong’s 1Q polished imports +9% to $4.3B. Belgium’s April polished exports -7% to $943M, rough imports +20% to $1B.
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| RapNet Data: May 10 |
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| Diamonds |
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850,608 |
| Value |
$5,857,080,172 |
| Carats |
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920,0511 |
| Average Discount |
-26.42% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
[Eliminating the excise duty on branded jewelry] provides the right financial atmosphere for the industry to grow and build the manufacturing sector in India.
Rajiv Jain | GJEPC
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Careers@Rapaport
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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. To get on the fast track, email your resume to careers@rapaport.com.
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INDUSTRY
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RBI Demands Forex Conversion to Rupee
The Reserve Bank of India (RBI) directed exporters to convert 50% their foreign currency held in Exchange Earner's Foreign Currency (EEFC) accounts into rupee within a fortnight to curb the currency's slide against the dollar. India's rupee hit a record close of 53.82 against the dollar on Wednesday. An exchange earner is eligible to retain 50% of future Forex earnings in non-interest bearing EEFC accounts. The balance shall be surrendered for conversion into rupee.
The central bank also said that exporters will be permitted to access the forex market for purchasing foreign exchange only after fully utilizing the available balances in their EEFC accounts. These provisions also apply to a Resident Foreign Currency Account (RFC) and a Diamond Dollar Account (DDA).
View RBI's declaration.
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India Withdraws Jewelry Tax
The Indian government has withdrawn the excise duty on branded jewelry and the proposed duty on unbranded jewelry much to the relief of the industry and consumers. Pranab Mukherjee, the country's Finance Minister, proposed in his federal budget speech to impose a 1% excise duty on unbranded jewelry, among other measures and 1% duty on branded jewelry was already in place. Indian bullion traders and jewelry retailers responded by declaring a strike, which ended after three weeks when Mukherjee agreed to reconsider the proposed tax.
Mukherjee also increased the limit on the tax collected at the source (TCS) for buying jewelry in cash to $9,350 (INR 500,000) from the earlier threshold of $3,740 (INR 200,000). However, the minister noted that the threshold limit for TCS on cash purchase of bullion, excluding coins or other articles below 10 grams, shall be retained at INR 200,000.
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Israel Weighs Cash Transactions Law
Israel's Knesset law and justice committee has approved a second and third reading of a bill that would require diamond and gemstone dealers to report any cash transactions to authorities in order to prevent money laundering and financing of terrorist activities, according to a notice from the committee. Once made into law, dealers will be required to keep records of all cash transactions and inform authorities of any cash transactions in excess of NIS 50,000, or about $13,000. By comparison, the U.S. requires recording and reporting of all cash transactions of $10,000 or more. Israeli dealers will also be required to report any suspicious transactions, even if the amount is less than NIS 50,000. The Ministry of Industry, Trade and Labor will announce the conditions governing the diamond and gemstone trade in the near future.
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RETAIL & WHOLESALE
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Retailer Profits Weaken, Rising Costs Pressure Margins
WATCH NOW: In this week's Rapaport Broadcast, a review of first-quarter financial results from Berkshire Hathaway (revenue +13% to $38B, profit +120% to $3.3B), Blue Nile (revenue +4% to $83M, profit -94% to $154K), Pandora (revenue -18% to $249M, profit -34% to $59M) and new plans from Element Six to build a research facility in Harwell Oxford.
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Online Jewelry 1Q Sales+17%
Online metrics firm comScore Inc. reported that online retail sales in the U.S. for the first quarter of 2012 rose 17% year on year to $44.3 billion. Higher prices helped to push the jewelry and watches category into the ''top-performing'' online products that comScore tracked in the quarter. Other products that sold well online included digital content and subscriptions, software, electronics and event tickets. Each of the top performers grew at least 17% year on year, comScore stated.
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Su-Raj 4Q Sales + 9% to $332M
Su-Raj Diamonds and Jewellery Ltd. reported that net sales rose 9% year on year to $332.3 million during its fourth fiscal-quarter that ended March 31. Net profits, however, fell 64% to $2.3 million. Jewelry sales grew 17% to $289.1 million, however, sales at its diamond segment declined 26% to $42.3 million and bullion sales fell 83% to $80,918.
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Kingold Profit +32%
Kingold Jewelry reported its first-quarter revenue soared 42% year on year to $225 million for the three months that ended on March 31, while cost of sales jumped 44% to $213 million. Net profit rose 32% to $7.3 million. The company's revenue increase was primarily driven by higher prices for gold and a greater number of sales for branded jewelry. Gross margin for the period was 5.1%, which was down from 5.7% one year earlier, because gold prices increased nearly 9% while the company could not raise its processing fee proportionally, according to its financial statement. Kingold processed approximately 8.84 metric tons of 24-karat gold products in the quarter, representing a year-on-year increase of 17.6%.
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Forevermark Selects 22 Canadian Jewelers
The Forevermark diamond brand selected 22 jewelers across Canada to carry Forevermark diamonds. The De Beers Forevermark diamond is only eligible for distinction after it has met strict standards of quality, business, social and environmental integrity at each step of the pipeline. The majority of these diamonds originate from the De Beers Canada Snap Lake and Victor mines before being cut and polished by Vancouver-based Crossworks Manufacturing Ltd., which has processing facilities in Sudbury and Yellowknife.
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Chatila Makes Cash Offer for Diamond Circle Capital
Abdallah Chatila acquired 1,272,615 shares in Diamond Circle Capital, a diamond investment firm, at a price of $3.50 per share and in so doing made an offer for all remaining shares at the same price. Chatila, in concert with Pavlo Protopapa and Evermay Global Inc. who together hold 25.93% of the voting rights in Diamond Circle Capital, now control slightly more than a 43% stake. Chatila's filing, as required by the London Stock Exchange, disclosed net worth of $109 million to $164 million. The board of Diamond Circle Capital issued a statement telling shareholders to ''take no action'' and that it would prepare a detailed response shortly.
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Amazon User Experience Sets the Bar
Analytics firm ForeSee Results released its annual shopper satisfaction survey of the top 100 online retailers, and while certainly more stores made the "threshold for excellence" this year than in the past, Blue Nile, Neiman Marcus, Macy's and ShopNBC did not. ForeSee stated that highly satisfied website customers are nearly 70% more likely to recommend the retailer to others, and considering how simple it is to share links on Facebook, Twitter and other social media avenues today, it is even more imperative to provide the best possible user experience.
ForeSee considers a website score of 80 points or higher out of 100 possible to exhibit superior customer satisfaction. In 2010 and 2011, 28 websites achieved scores above 80 points and this year 36 retailers reached that benchmark.
Amazon scored the highest of all retailers at 89 points, an increase of three points from 2011. Other online retailers that sell jewelry and scored above 80 points included, QVC (85), Avon (83), Walmart (82), HSN (81), Kohl's (81), JCPenney (80), Nordstrom (80) and Ralph Lauren (80). The retailers that sell jewelry online and have to improve their scores with a better user experience include, Neiman Marcus (78), Macy's (77), ShopNBC (77), Blue Nile (75), Overstock (75), RueLaLa (75) and Sears (75), according to the survey data.
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Wealthy Rank Nordstrom as the Best
Wealthy U.S. shoppers ranked Nordstrom as the best among luxury retailers in the 2012 Luxury Consumer Experience Index (LCEI) survey that was conducted by the New York-based Luxury Institute. The LCEI scored several brands' store personnel, shopping environment and the degree of satisfaction for a comprehensive total experience as ranked by consumers who reported an income average of $292,000 and average net worth of $3 million.
Nordstrom's score Was 8.41 out of 10, followed by Neiman Marcus’ Bergdorf Goodman subsidiary at 8.37, and Barneys New York earned 8.23. The Luxury Institute also determined that Nordstrom was the most visited luxury retailer, with 36% of wealthy consumers reporting shopping at Nordstrom in the past 12 months.
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Stuller Introduces Its 'Interiors by Stuller' Program
Stuller Inc. introduces its ''Interiors by Stuller'' program, which is designed to help jewelers maximize the selling potential of their retail space in a way that best showcases inventory.The program offers four pre-designed showcase collections, which can be mixed, matched and customized to the customer’s specifications. For those looking for a one-of-a-kind experience, Stuller also provides a fully customized option. Specialized interiors consultants are available to support and guide jewelers throughout the entire design process.
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GENERAL
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Saez Joins Blue Nile
Online retailer Blue Nile appointed Engle Saez as the company's chief marketing officer. Saez has provided branding, marketing, and product leadership for more than 20 years to consumer brands such as Esprit de Corp., Eddie Bauer, Timberland, Sperry Top-Sider and Starbucks. Most recently, he served as head of product and marketing at Coinstar, where he was instrumental in the repositioning and growth of the COIN line of business.
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Bank Secrecy Act Filing Goes Online
The U.S. Financial Crimes Enforcement Network (FinCEN) is requiring all institutions subject to Bank Secrecy Act reporting, to file their reports electronically beginning July 1. The change was made in an effort to improve efficiency, reduce government and industry costs and enhance the ability of investigators, analysts, and examiners to access information in a timely manner.
Bank Secrecy Act e-filing, which is free to use, streamlined information submission, quickly routes information to law enforcement, offers greater data security and privacy than paper and ensures compatibility with future versions of FinCEN reports. Effective July 1, institutions must submit FinCEN reports electronically unless they are eligible to request a temporary exemption as identified in the final ruling.
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RJC Seeks Comments on Fairtrade
The Responsible Jewellery Council (RJC) opened public comment for its ''Fairtrade Fairmined Standard'' through June 2, in effort to establish responsible mining practices under the group's chain-of-custody standards. The fair trade and fair mined standards contribute to the formalization and democratization of artisanal and small-scale gold mining, RJC stated, in addition to bringing additional market access to certified artisanal and small-scale producers. RJC's chain-of-custody certified refiners will be able to source from Fairtrade and Fairmined certified small-scale gold producers, contributing to the integration of artisanal and small-scale miners into the formal economy.
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Scio Diamond Starts Production
Scio Diamond Technology Corporation reported having successfully launched diamond material production from its CVD reactors based in South Carolina. Scio is proceeding with the systematic startup of its man-made diamond products for industrial and commercial use. The company plans to initiate and build production during the current quarter and reach full production by September.
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MINING
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ALROSA Sales Reach $46M in April
ALROSA sold $45.7 million in special-size rough diamonds, weighing 10.8 carats or more, at two auctions during April. ALROSA plans to hold nine additional auctions in 2012. In other company news, the mining giant's production subsidiary Alrosa-Nyurba, reported that profits rose 42% year on year to $76 million in the first quarter. Sales revenue, however, rose only 1.1% to $216 million.
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Petra Sales +87%
Petra Diamonds reported that revenue rose 87% year on year to $98 million in its third fiscal quarter that ended on March 31. Profits were not disclosed in the interim report. Petra sold 626,958 carats of diamonds during the quarter, up 134%, and production increased 126% to 622,509 carats due mainly to the inclusion of output from its Finsch mine.
Petra noted that the rough diamond market stabilized in December 2011, and pricing has since shown a slow but steady upward trend, although market growth has been tempered by some volatility.
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Stornoway Secures $20M
Stornoway Diamond Corporation entered into a $20 million unsecured debt facility with lenders, the Fonds de solidarité FTQ, the Fonds régional de solidarité FTQ Nord-du-Québec, S.E.C. and Investissement Québec, through its indirect wholly-owned subsidiary Diaquem Inc. Proceeds from this facility will be used to finance pre-development work at the Renard diamond project, including the initiation of detailed engineering, the ordering of long-lead mining equipment and the expansion of Stornoway's mining team.
The loan was backed 75% by the Fonds and 25% by Diaquem. Stornoway granted the lenders, on a proportionate basis, a total of 15 million share purchase warrants, each of which entitles the holder to acquire one common share in the share capital of Stornoway at a price of $1.21 for a period of 5 years following closing.
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Lucara to Sell Karowe Production in June
Lucara Diamond expects production from its Karowe diamond mine in Botswana to be available for sale in June. Buyers may view approximately 40,000 carats of Karowe rough diamonds ahead of time in Gaborone during the first week of June, with an online auction scheduled to take place on June 11.
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STATS
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USA
| | Mar. $Mil. | %Chng. | YTD $Mil. | %Chng. | | Polished imports | $1,804 | -7% | $4,814 | -7% | | Polished exports | $1,532 | -2% | $4,295 | -1% | | Net imports | $272 | -30% | $519 | -38% | | | | | | | | Rough imports | $52 | 41% | $120 | -31% | | Rough exports | $38 | -10% | $110 | 5% | | Net imports | $14 | | $10 | -86% | | | | | | | | Net diamond account | $286 | -25% | $529 | -41% |
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Belgium
| | Apr. $Mil. | %Chng. | YTD $Mil. | %Chng. | | Polished exports | $943 | -7% | $4,515 | 2% | | Polished imports | $931 | -8% | $4,644 | 10% | | Net exports | $12 | 475% | ($129) | | | | | | | | | Rough imports | $1,028 | 20% | $4,509 | 6% | | Rough exports | $1,195 | 6% | $4,804 | 3% | | Net imports | ($167) | -39% | ($295) | | | | | | | | | Net diamond account | $177 | -35% | $166 | -74% |
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Hong Kong
| | 1Q $Mil. | %Chng. | | Polished imports | $4,320 | 9% | | Polished exports | $3,300 | 2% | | Net imports | $1,020 | 40% | | | | | | Rough imports | $321 | 11% | | Rough exports | $433 | 46% | | Net imports | ($113) | | | | | | | Net diamond account | $907 | 38% |
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ECONWATCH
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Diamond Industry Stock Report
Broad-based selloff of retail and mining shares this week. The only exceptions were Blue Nile (+3%), Charles & Colvard (+4%) Zale (+12%), Chow Tai Fook (+1%), Theo Fennell (+3%), Goenka Diamond (+18%), Lucara (+5%), Peregrine (+5%) and Stellar (+3%). Read the extended industry stock report for this past week
| | May 10 | May 3 | Chng. | | | $1 = Euro | 0.770 | 0.760 | 0.010 | | | $1 = Rupee | 53.26 | 53.33 | -0.1 | | | $1 = Israel Shekel | 3.81 | 3.78 | 0.03 | | | $1 = Rand | 8.00 | 7.73 | 0.27 | | | $1 = Canadian Dollar | 1.00 | 0.99 | 0.01 | | | | | | | | | Precious Metals | | | | | | Gold | $1,594.80 | $1,636.00 | -$41.20 | | | Platinum | $1,484.00 | $1,531.00 | -$47.00 | | | | | | | | | Stock Indexes | | | | Chng. | | BSE | 16,420.05 | 17,151.19 | -731.14 | -4.3% | | Dow Jones | 12,845.74 | 13,206.51 | -360.77 | -2.7% | | FTSE | 5,543.94 | 5,766.55 | -222.61 | -3.9% | | Hang Seng | 20,227.28 | 21,249.53 | -1,022.25 | -4.8% | | S&P 500 | 1,357.99 | 1,391.57 | -33.58 | -2.4% | | Yahoo! Jewelry | 958.75 | 983.95 | -25.20 | -2.6% |
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INDIA MARKET REPORT
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Polished and rough trading activity
Polished trading is restrained and the dollar reached new highs against the rupee, furthermore liquidity is very tight and there is ample supplies of rough in the market.
Read the full report.
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