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Market Comments 7/26/2012

Jul 26, 2012 6:00 PM  
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Rough markets under pressure with prices softening, inventories rising and ‎cutters losing money. Polished trading very weak as Israel and Belgium head to vacation ‎and liquidity pressures mount in India. De Beers 1H profits -44% to $386M with ‎rough sales -12% to $3.1B and production -13% to 13.449M Cts. Zale secures new ‎‎$665M credit facility. Swatch Group 1H net sales +16% to $3.7B, net income +25% to ‎‎$729M. Bulgari boosts LVMH 1H jewelry & watch sales 133% to $1.6B, operating profit +87% to $195M. Antwerp bourses to close July 30 to Aug. 19 and Israel Diamond Exchange to ‎close Aug. 5-19 for vacations.

Fancy market doing relatively well as significantly lower prices than rounds ‎attract value conscious buyers. Cushions are very hot with supply shortages. Weak ‎demand and lower prices for rounds are encouraging manufacturers to shift production ‎back to fancy shapes. Dealers report fancy shape market for excellent shapes and cuts ‎is better and more profitable than round markets. Large fancies stones relatively stable ‎but sales and liquidity are weak. There are extreme price differentials ‎between ‎excellent/fine and average cut fancy shapes. Fine cut stones may not be available as ‎‎suppliers tighten discounts and resist lower prices. Square cuts doing better than curves.‎

Global Markets

United States: Wholesale trading continues to be slow during July, as is expected for ‎this time of year. Wholesalers are hesitant to replenish their round inventory as they ‎expect prices may further soften on certain items. They are seeing some replacement ‎value in IF-VVS clarity goods with rough price decreases in these stones more ‎pronounced. However, demand for these polished goods remains weak. There is good ‎demand for round and princess, 0.5-carat to 1.5-carat, G-I, SI- goods. Retailers with a ‎strong focus on bridal are seeing steady sales.‎

Belgium: There is an excess of rough and polished inventories, particularly among some ‎of the larger dealers and manufacturers in Antwerp. Trading of De Beers and ALROSA ‎goods has been limited due to their high prices and low profitability for dealers and ‎manufacturers. Polished demand remains subdued with commercial quality and lower-‎end goods selling better than high-end categories.    ‎

Israel: Polished trading remains quiet but steady. Suppliers are selling rounds at lower ‎prices and are pushing to close deals before the August break. The Israel Diamond ‎Exchange is scheduled to close for its annual summer break from August 5 to August 16. ‎Some U.S. buyers have been seen in the bourse looking for goods, but dealer demand is ‎below levels seen this time last year. There is good demand for clean-cut, triple EX ‎goods. Rough trading is quiet following last week’s Diamond Trading Company (DTC) ‎sight with some larger dealers holding onto rough inventory until profit margins improve. ‎

India: Polished demand improved slightly from last week but overall trading continues to ‎be limited due to price uncertainties. Buyers are not making large-scale purchases ‎despite the fact that sellers are ready to adjust prices on certain categories. There is ‎steady demand for SI-I1 clarity goods, while demand remains weak for better quality ‎stones. Rough trading remains under pressure due to weak demand and high prices of ‎De Beers and ALROSA goods. Manufacturers’ profit margins are tight and many are ‎finding it difficult to recover rough costs on the resulting polished. Manufacturing levels ‎therefore continue at ‎levels below capacity and rough inventories have increased. Tight ‎liquidity and a volatile exchange rate continue to impact confidence and business activity.‎

China: Retail activity slowed this week, particularly in South China which was hit by ‎Typhoon Vicente and subsequent flooding. Wholesale diamond demand remains ‎restrained as buyers are holding back from building additional inventory during the ‎summer months. Trading is expected to remain slow through August and dealers are ‎expected to increase their buying only once they see greater price stability and as they ‎head into the October Golden Week season. ‎

Hong Kong:
Erratic weather has affected trading with financial markets and airports ‎closed for a day this week due to Typhoon Vicente. Trading generally slows during the ‎seasonal heat typical in July. Regardless of the weather, Hong Kong has seen a slump in ‎diamond demand, largely due to a slowdown in economic growth in Mainland China. ‎There is relatively good wholesale demand for VS-SI goods.    ‎

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