Mar 23

Rapaport TradeWire March 23, 2017


United
States: 
Sentiment improving with dealers filling orders. A
lot of goods out on memo. Stable demand for commercial-quality 1 to 2 ct., G-I,
VS2-SI2 diamonds


Belgium:
Positive market momentum with good Far East demand
for dossiers and steady U.S. demand for 1 ct., D-H, VS-SI, RapSpec A3+ diamonds

Israel:
Polished trading relatively slow compared with other
centers. Dossiers stable but 1 to 2.99 ct., D-J, VVS-VS sluggish with tight profit
margins

India: Good mood in the market. Firm prices for smaller
diamonds signal diminishing negative impact of demonetization on local trading

Hong
Kong:
Polished market slowed slightly after the peak
selling period surrounding the March show. Steady demand for 0.50 to 0.70 ct.,
D-H, VVS-SI RapSpec A2+ (3X, none) diamonds

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Mar 23

Will Retail Help De Beers ‘Build Forever’?

RAPAPORT… Taking control of the De Beers Diamond Jewellers (DBDJ) retail operation from LVMH has completed De Beers transformation from a mining company into a diamond luxury group.

The acquisition means that not only is De Beers effectively spread across the entire diamond pipeline now, but it also has full control of its name, which the retail business was unable to leverage.

The partnership between De Beers and LVMH was, essentially, a failed one. DBDJ produced consistent losses; its most recently available report showed a net loss of $13.2 million in 2015 – largely due to high costs and operating expenses – even though sales rose 3 percent to $161.3 million that year.

Initially, at least, that reality will weigh on De Beers as the company takes responsibility for running the retail chain. Before, LVMH managed the operation, with De Beers taking a share of the profit – or, more accurately, incurring its losses.

In the new structure, from an accounting perspective, DBDJ will likely be treated the same way as other De Beers subsidiaries – Element Six, Forevermark and the International Institute for Diamond Grading (IIDGR).

In its financials, De Beers separates its rough diamond sales – its core business, which totaled $5.6 billion in 2016 – from “other sales,” which refers to the combined contribution of its subsidiaries. DBDJ would then give those other sales – which amounted to about $500 million last year – a $160 million-plus annual boost.

However, the decision to buy the retail business undoubtedly extended well beyond the financials.

The move further centralizes the company’s corporate identity and brand ownership – an exercise it initiated in 2012. Before then, De Beers was somewhat fragmented, with even its respective rough sales divisions – Diamond Trading Company (DTC) and Diamdel – carrying different logos. Today, these are De Beers Global Sightholder Sales and De Beers Auction Sales respectively, and they come under a single corporate “De Beers” emblem – complemented by the company’s “A Diamond Is Forever” tagline.

It was always rather puzzling that DBDJ did not utilize the iconic marketing campaign as De Beers shifted to brand-centric advertising. LVMH’s involvement clearly complicated things. The famous tagline, which only recently made a comeback in 2015, was saved for Forevermark and for underlining the general philosophy of the company. Today, De Beers messaging centers on “building forever,” whether it refers to supplying diamonds, its stakeholders, sustainability and governance issues, or the product’s impact on society.

We expect DBDJ will fit into that messaging and utilize the tools at its disposal now that it falls within the De Beers structure. How that will take shape, however, is a matter of speculation at this stage.

De Beers CEO Bruce Cleaver hinted at the company’s plans in this week’s press statement announcing the acquisition, when he said that “more fully integrating the De Beers Diamond Jewellers brand and store network will enable us to deliver an even more differentiated diamond offering, alongside our fast-growing diamond brand, Forevermark.”

If anything, the merger will likely change how DBDJ relates to Forevermark in the future. Perhaps DBDJ will carry Forevermark diamonds. Or better yet, perhaps De Beers will rebrand the stores under the Forevermark name.

But according to David Johnson, a De Beers spokesperson, the company doesn’t intend to do either of those things.

“DBDJ and Forevermark operate via different distribution models, and their respective consumer offerings are positioned differently,” Johnson explained. “De Beers believes it is able to unlock the potential of both brands, and this prospect was one of the drivers for acquiring full control of DBDJ.”

In that case, De Beers has its work cut out for it, given the retail operation’s performance history.

Restructuring the chain as part of Forevermark, meanwhile, would add value to the Forevermark brand and have a positive ripple effect on its retail partners. Although such a move might raise concerns that the company is competing with its customers, the model is quite common in retail. Nike, for example, distributes its shoes to other retail outlets, but also operates its own stores – strengthening its brand in the process.

Adopting such a strategy would not be a mass-market play for De Beers. In fact, it might require the company to scale down its retail operations and limit the stores to strategic locations that would prevent them from encroaching on Forevermark retailers. Downsizing would also help cut costs and elevate the exclusivity of the stores.

There are currently 32 De Beers stores in 17 key consumer markets around the world. Forevermark, meanwhile, opened its 2,000th retail door in February, and is now available in 25 markets. While Forevermark has steadily gained consumer recognition since its launch in 2008, integrating DBDJ stores would give the brand a massive boost.

It would also restore the De Beers logo to its intended role of defining the company’s corporate identity, which now touches on every aspect of the diamond distribution chain.

Alongside Forevermark and its retail operations, De Beers has mining and exploration projects, rough diamond sales, polished grading, synthetics detection equipment, synthetics research, diamond supply for industrial use, and a technology unit. It also has a number of side projects, including the development of a third-party polished trading platform, an education program, and a pilot project exploring ways to improve consumers’ experience when reselling diamonds.

That combination of entities is what differentiates De Beers from other diamond miners. While its rough sales provide its core revenue, the subsidiary businesses are what drive its value – particularly Forevermark. In contrast, the likes of ALROSA, Dominion, Rio Tinto, Petra Diamonds and others are only worth the volume of diamonds they produce.

De Beers stopped worrying some time ago about being the largest diamond producer in the world. Today, that mantle belongs to ALROSA. Instead, De Beers is concerned with building its brand equity to enhance the value of its production, which, we all recognize, will not last forever.

The company can only “build forever” by positioning itself in the luxury space rather than in the mining sector. Taking ownership of its store network completes the initial strategy to do just that. What it does with those stores will ultimately reveal where the strategy goes next.

Mar 23

Swiss Watch Dip Expected to Solidify Market


RAPAPORT… 
The Swiss watch industry remained cautious at
the start of the Baselworld show this week as data indicated a continued
slowdown in the timepiece trade.

The exhibition opened in Basel on Thursday, with the Federation of the Swiss
Watch Industry reporting that the nation’s watch exports had fallen 10 percent
to $1.5 billion (CHF 1.49 billion) in February.

Global political and economic challenges and the strength of the Swiss franc
have hurt the country’s watch trade, François Thiébaud, head of the Tissot
brand and president of the Swiss Exhibitors’ Committee, explained Wednesday
ahead of the fair.

But the market will go through a period of consolidation that will benefit the
entire watch sector, predicted Eric Bertrand, president of the Baselworld
Exhibitors’ Committee.

Downturns are “an opportunity for those who have done their job properly in
recent years and who have a solid foundation on the market,” Bertrand argued.

“When unfavorable winds blow, then cold
reality strikes,” he said. “This recovery will enable the best-armed players to
gain market share and be more successful than ever before.”

The February data showed a negative performance across all categories.
Shipments of precious-metal watches slid 17 percent, while steel-timepiece
orders slipped 6 percent and shipments of watches containing both gold and
steel decreased 4.9 percent.

By price category, exports of wristwatches valued above $3,024 (CHF 3,000) fell
12 percent. Those in the $504 (CHD 500)-to-$3,024 range declined 3.1 percent,
with shipments of pieces costing between $202 (CHF 200) and $504 dropping 7
percent. Wristwatches priced at less than $202 went down 22 percent.

Exports to Hong Kong fell 12 percent to $188.3 million (CHF 186.8 million),
while shipments to the U.S. plummeted 26 percent to $148.8 million (CHF 147.6
million) following two months of positive figures.

The
Baselworld show runs from March 23 to 30.

Image: Newscast

Mar 23

China’s Polished Imports Rise in 2016

RAPAPORT…

China’s polished diamond imports increased 4.9 percent to
$7.02 billion last year, according to data from the China Customs Information
Center.

By weight, polished imports increased 1.2 percent to 7.7
million carats, while the average price rose 3.7 percent to $916 per carat, the
figures showed.

Polished exports fell 11 percent to $1.91 billion, meaning
net polished imports jumped 12 percent to $5.12 billion.

While rough exports increased 11 percent to $30 million, rough
imports slid 13 percent to $666 million, pushing net rough imports down 14
percent to $635 million.

China’s net diamond account, representing total imports
minus total exports, increased 9 percent to $5.75 billion.

Mar 23

WJA Unveils ‘Shining Star’ Award Winners

RAPAPORT… The Women’s Jewelry Association (WJA) announced the
winners of its “Shining Star” awards for 2017, which recognize the service
provided to the organization by one member of each regional chapter.

The WJA honored the winners at an event following the
trade body’s annual presidents’ conference in Dallas, it said Wednesday.

The WJA supports women’s professional development in the jewelry and watch industries through networking, education, leadership development and member services.

The winners in full:


Michelle Aldag

Data in the Rough blog
Boston


Tina Rohde
(pictured)
Artistry, Ltd., and Kato Photography
Chicago


Cara Dingenthal

ConferenceSource
Colorado


Marcia Hucker

Bock Jewelry Company
Dallas


Lisa Kim

Lisa Kim Fine Jewelry
Los Angeles


Olga González

Pietra PR
New York Metro


Rachel Deppe

66mint Fine Estate Jewelry
Northern California


Christina Brandewie

CABBochon Co.
Ohio-Kentucky


Kristen Thurber

JoJo Loves You
Providence


Marreena Appleton

My Eden
San Diego


Monica Stephenson

ANZA Gems, idazzle.com
Seattle


Scott Stebbing

Stebgo Metals Inc.
Twin Cities

Mar 23

ALROSA Upbeat Despite Sales Decline

RAPAPORT… ALROSA sales fell 6 percent to an estimated $1.25 billion during the first quarter even as its rough diamond prices firmed, the company reported at an investor conference on Wednesday.

The miner’s rough diamond price index rose 2 percent with reports of strong demand at the beginning of the year. The index was flat through 2016.

“ALROSA slightly increased its average diamond price across the mix, so we think the pricing outlook for 2017 now looks stronger,” analysts at VTB Capital wrote after the presentation. “As the market seems to be in good shape, this leaves a more positive price outlook for 2017.”

ALROSA held its third sale last week, after it garnered $365.4 million and $401.9 million respectively in the first two months of the year.

The company sells rough through three channels, conducting 69 percent of its sales through long-term contracts, another 15 percent via spot sales, and the remaining 16 percent by tender in 2016. It currently has 69 clients with long-term contracts.

Although sales slowed during the quarter, the company maintained a positive outlook for the rest of 2017, with full-year production projected to rise 5 percent to 39.2 million carats as the miner ramps up to 40.4 million carats by 2021.

The company expects the rough diamond market to be balanced in the mid-term after the major producers have sold off inventory they accumulated before 2015. ALROSA sold 40 million carats, having recovered 37.4 million carats last year.

Management said it would continue to streamline its operations to focus on diamond mining, easing concerns about the direction the company might take under new chief executive officer (CEO) Sergey Ivanov.

“The company remains committed to divesting non-core assets, with the new CEO putting a special focus on oil and gas assets,” VTB Capital analysts said. “While the divestment of oil and gas assets might get additional impetus under the new management, we reiterate our positive view on ALROSA.”

Shares in ALROSA rose 3 percent in midday trading Thursday on the Moscow Stock Exchange. 

Mar 22

Dominion, Stornoway in Merger Talks: Report

RAPAPORT… Dominion Diamond Corporation and Stornoway Diamond
Corporation have held discussions over a merger, Reuters reported this week, as
Dominion continued to denigrate a separate takeover offer from the Washington Companies.

The merger talks cover the possibility of Stornoway chief
executive officer Matt Manson (pictured) filling the soon-to-be vacant CEO role at
Dominion, the report said. Discussions started in January, Reuters cited one
source as saying, adding that another said talks were still ongoing.

Dominion and Stornoway both declined to comment on the
report.

A union between the two would combine three significant
mining assets in Canada under one roof, with Stornoway having opened the Renard
mine in Quebec last October. Dominion owns the Ekati deposit in the Northwest
Territories and has a 40-percent stake in the region’s Diavik deposit.

The report came as Dominion confirmed it was prepared to
enter discussions with Washington, a diamond-industry outsider that had approached
the miner with a proposal for a $1.1 billion takeover. On Wednesday, Dominion
said Washington had not made a formal offer, and reaffirmed an earlier
statement from Sunday that the approach was “opportunistic” and undervalued the
company.

Dominion also said Washington had demanded a veto on the
choice of replacement for the miner’s CEO, Brendan Bell, who is set to leave by
June 30. Washington, however, insisted it had only requested that Dominion
avoid appointing a CEO during an exclusivity period, according to a letter it
sent to Dominion chairman Jim Gowans and which the mining company released on
Wednesday.

Letters between Gowans and Washington president Lawrence
Simkins indicate “the aggressive and off-market terms and conditions proposed
by WashCorps [Washington Companies],” Dominion argued.

Mar 22

India’s Polished Exports Improve in Feb.

RAPAPORT… India’s polished exports rose 3 percent to $2.41 billion in February, according to data published by the Gem Jewellery Export Promotion Council (GJEPC).

The country, considered a bellwether of global polished diamond production, exported a slightly lower volume of goods, down 1 percent for the month, while the average price of the exports increased 4 percent to $738.53 per carat.
Polished imports dropped 20 percent to $178 million, and net polished exports – the excess of exports over imports – increased 6 percent to $2.24 billion.

Meanwhile, imports of rough diamonds to India declined 3 percent to $1.51 billion during the month, and rough exports grew 11 percent to $145 million, the GJEPC reported. Net rough imports declined 4 percent to $1.36 billion.

India’s February net diamond account, which indicates the country’s diamond trade surplus, grew 25 percent to $875 million, according to Rapaport calculations.

India’s polished exports increased 3 percent to $4.03 billion for the first two months of the year. Rough imports grew 9 percent to $2.77 billion, mirroring the rise in demand reported at the respective De Beers and ALROSA sales during the period.

The country’s net diamond account edged up 1 percent to $1.2 billion over the two-month period.