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Rapaport Weekly Market Report 07/02/2010

Insight into trends in the global diamond industry.
Jul 2, 2010 12:15 PM   By Avi Krawitz
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RAPAPORT...

Between the Lines

Show Time: Prices in Hong Kong Rise, But Not to the Level of Cutting Centers

There were mixed reports from the June Hong Kong Jewellery & Gem Fair 2010, with the overall feeling being that sales there improved against last year. Buying activity was driven by Indian visitors and there was also good demand from China and surrounding countries, like Vietnam and Myanmar.

The show ran from June 24 to June 27, with the first and last days reportedly generating the strongest sales. The mood was upbeat after the quiet months preceding the event, as buyers sought goods in all categories. There was good demand for 1.00-carat and 2.00-carat goods and buyers were willing to raise their bid prices for these goods.

While buyers did raise their price levels slightly, notable differences between buyers’ and sellers’ asking prices remained. Exhibitors reported that there is still a lag in prices between the buying and cutting centers. “Buyers offered more but it was a price we were asking a month ago so our profits are still small,” said one seller at the show. Prices on collection goods reportedly rose and some vendors noted a shortage of better-quality diamonds on the market.

Rough Market: Botswana Clears AK6 Rough Tenders

Lucara Diamond Corp. and African Diamonds, which own 60 percent and 40 percent of Boteti Mining, respectively, announced that the Botswana government has agreed to allow Boteti to market diamonds from its prospective AK6 mine through either open tenders or exclusive contracts.

The deal is significant because it will mark the first time that sales in Botswana will be made outside the De Beers Diamond Trading Company (DTC) framework. A sale by tender would be another step toward developing Gaborone as a diamond trading hub and it is expected that rough tenders conducted independent of mining companies would follow.

Development at the AK6 mine is scheduled to start in July 2010 and a production launch expected in late 2011. De Beers and the Botswana government, equal partners in DTC Botswana and mining company Debswana, are in negotiations to renew their marketing contracts, with the government expected to push to sell some Debswana rough at tender.

Manufacturing & Wholesale: Lazare Kaplan Forced To Delist From NYSE

Lazare Kaplan International (LKI) will be delisted from the New York Stock Exchange (NYSE) Amex due to its failure to file required financial statements. The diamond manufacturing company is late in filing its report for the year that ended on May 31, 2009 and for the three subsequent quarters of fiscal 2010.

LKI explained that the missed deadlines were a result of its inability to resolve “material uncertainties” regarding the collectability and recovery of certain assets, as well as potential obligations under certain lines of credit and guaranty.

In April, the company said it estimated that third-quarter sales for the three months that ended on February 28, 2010 fell 32 percent year on year to $28.9 million. For the first nine months of the year, sales were expected to drop 22 percent to $126.1 million.

LKI did not contest the delisting notice and said it expects to reapply to be relisted once all of the reports in question have been filed and updated.

Retail: Theo Fennell Diversifies

Luxury jeweler Theo Fennell is planning to launch a new range of low-cost jewelry in October in an effort to boost profits. Chief executive officer (CEO) Barbara Snoad told Reuters the new range of silver jewelry would be priced between $105 and $2,994 (GBP 70 and GBP 2,000) and is expected to drive the next stage of the company's turnaround plan.

Theo Fennell reported a pretax net loss of $375,000 (GBP 250,000) for the year that ended on March 31, 2010, compared to a loss of $3 million (GBP 2 million) for the previous year. The company changed course after founder Theo Fennell returned to its management after leaving in 2008 and subsequently launched its first new collection in two years, which helped boost same-store sales by 23 percent in the second half of fiscal 2010.

With the new proposed collection, Theo Fennell is entering a different market. While Snoad dismissed claims that the move to a cheaper line was a response to the recession, it may signal a trend amongst retailers to diversify their products as a hedge against future downturns. It certainly makes sense for manufacturers to work with cheaper materials, such as silver, rather than more expensive gold and platinum, while maintaining the quality of their work. For Theo Fennell, broadening consumer outreach should be a risk worth taking.

Global Markets

United States: Traders are growing in confidence as prices have edged up, although they are hoping for additional increases. Most are still concerned about the economic recovery and that sustained high unemployment will further impact the jewelry market. There is good demand for 0.50-carat, SI goods, while demand for 1.00-carat goods in all categories continues to be strong. High-quality fancy shapes, mainly princess and cushions, are in demand. Retail sales continue to be dominated by bridal goods, with the engagement ring market maintaining a strong level of sales.

Belgium: Trading is stable but quiet, with much of the focus having shifted to Hong Kong in the past week. There were positive reports from the Hong Kong show, though there is some resistance from buyers toward sellers’ asking prices. There is a shortage of certain items, particularly 0.60- to 0.80-carat and 1.50-carat goods, and sales of 0.30- to 0.70-carat goods have slowed. There are also significant supply shortages in the nicer VG+ goods and especially in Triple-EX goods, while demand for larger goods above 3.00 carats has improved.

Israel: Trading quieted in Ramat Gan as is often the case during this time of year. Dealers and manufacturers who went to the Hong Kong show were satisfied with the event, but did not report extraordinary activity there. Some stayed longer to try to make additional sales. There is some expectation of a last-minute push to sell goods before the summer break in August. Overall demand for goods is stable, while demand for 1.50-carat stones has improved. Demand for pointer sizes of 50- to 70-carat stones has slowed in the past week.

India: Activity slowed slightly in polished and rough trading, with reports that prices at the BHP Billiton tender declined, resulting in more buyer resistance to sellers’ asking prices. Many buyers are expecting some correction to balance the high prices observed in the market, while continued instability in the dollar-rupee exchange rate is also contributing to their caution. There remains strong demand for 0.02-carat, J+, SI-pique good, while melee, J+, SI-pique is also a hot category. There is good demand for 1.00-carat goods in all categories, with severe shortages reported in pique goods.

China: The retail and wholesale markets are stable, although trading is subdued, as expected for this time of year. The mood has dropped slightly among retailers, particularly in the south of the country, where rainy weather is keeping consumers away. 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: The market improved in the past week, with the influx of buyers for the June Hong Kong Jewellery & Gem Fair 2010. Buyers at the show eased their resistance to sellers’ asking prices, but there remains a notable gap between the two and there is still a price lag evident between the buying and cutting centers. There was good demand for high-color SI goods at the show and medium- to high-color, VS-SI stones. There is good demand for high-end goods.

Quote of the Week

“To me, consensus seems to be the process of abandoning all beliefs, principles, values and policies. So it is something in which no one believes and to which no one objects.”

— Margaret Thatcher, former British Prime Minister

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

Disclaimer

©Copyright 2010 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400. This Rapaport Market Report is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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Tags: Avi Krawitz, African Diamonds, Avi Krawitz, Belgium, BHP Billiton, Botswana, China, Consumers, De Beers, Debswana, DTC, GIA, Government, Hong Kong, India, Israel, Jewelry, Lazare kaplan, Lucara Diamond, Manufacturing, Mining Companies, Myanmar, Production, Tenders, Theo Fennell, United States
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