DIAMOND MARKET OVERVIEW
Traders reported a lacklustre week for polished. Some said retailers were cautious about restocking, maintaining low inventory levels. In other news, the US National Retail Federation (NRF) said it did not expect consumers to have splurged on jewellery in a big way this season, as the economy is going through a “stable yet fragile recovery”. The closely watched Lunar New Year sales in China rose at their slowest rate in four years, as the Government is reigning in on luxury spending by officials. In the wholesale market, traders reported good demand for commercial type goods, primarily for the American market. Meanwhile, the main PolishedPrices index strengthened over the past week, opening up at 140.46 points on Friday, from Monday’s opening at 139.13.
Traders reported strong demand for rough in the secondary market. Talk of supply shortages, due to production declines at De Beers’ major mines has fuelled active buying by traders speculating on future price hikes. “There is still plenty of rough in the pipeline, but a lot people are expecting shortages,” said a trader. The main focus is on the DTC sight at the end of the month to see if the world’s largest supplier will raise prices.
CORPORATE AND EVENTS
De Beers announced a drop in full year group sales of 16% to $6.1 billion over the previous year. Rough diamond sales fell 15% to $5.5 billion, from $6.5 billion in the January to December 31, 2011 period. The decline in rough sales was largely a result of diminished demand, changing product requirements from Sightholders, and reduced availability of some goods, De Beers said in a statement. It said sales of rough via De Beers’ auction platform decreased to $356 million in 2012, from $405 million in 2011, due to subdued buyer activity. On the production side, it said operations continued to focus on maintenance and waste stripping backlogs in light of prevailing diamond market trends as well as operational challenges. The company’s diamond production totalled 27.9 carats in 2012, from 31.3 million carats in 2011. Debswana accounted for the vast bulk of its output, producing 20.2 million carats. This is 2.7 million carats lower compared to the previous year, mainly as a result of the Jwaneng Mine slope failure. Exceptionally heavy rainfall at Jwaneng in December, as well as more recently at Venetia mine in South Africa, has reportedly affected production at both mines. To maintain production both at Jwaneng and Venetia, it is believed that De Beers has continued recovering diamonds from tailings, which inevitably impacts on the size distribution. “Production from tailings means that proportionally more smaller diamonds and less larger stones being recovered,” said Charles Wyndham, at WWW International Diamond Consultants Ltd. De Beers said its underground expansion project at Venetia had obtained final outstanding regulatory clearances in February 2013 and that the project will commence shortly. De Beers will invest approximately US$2 billion in capital expenditure to build the new underground mine, which will extend the life of the resource until 2042 and replace the open pit as South Africa’s largest diamond mine, it said. De Beers declined to provide results figures for its jewellery venture with LVMH, Diamond Jewellers, but said the retail venture “faced challenging market conditions experienced by most high-end jewellers in 2012.” Overall for this year, De Beers said it expects moderate growth in diamond jewellery demand: “This (moderate growth) will be supported primarily by a more positive picture emerging from China and India compared to 2012. Some upside is possible in the US, while trading conditions in other developed markets are likely to be challenging. The rough diamond manufacturing sector closed 2012 with high levels of inventory, particularly in the higher-end categories of diamonds, and faces continued pressure in terms of midstream liquidity. In the medium to long term, industry fundamentals are expected to strengthen as diamond production plateaus and demand continues to increase,” the company said.
Shop and restaurant sales in China during the week-long Lunar New Year festival rose at the slowest pace in four years as a government crackdown on extravagant spending by officials limited outlays on food and drink, Bloomberg reported. Retail sales at outlets monitored by the Ministry of Commerce increased 14.7 percent in the Feb. 9 to Feb. 15 period from the year-earlier break to 539 billion yuan ($86 billion), according to a statement on its website. That was down from a 16.2 percent pace in 2012 and the least since a 13.8 percent gain in 2009, according to previously released figures, the Bloomberg report said. The New Year holiday, comparable to the peak Christmas shopping rush in the U.S., is a period when consumers in the world’s second-biggest economy splurge on food, jewelry and gifts, and government officials are wined and dined. Sales may have been damped by a campaign started by Xi Jinping, the new head of the Communist Party, to rein in lavish spending while rising incomes are prompting more Chinese to travel overseas, said the report. “The slower growth, manifested in the restaurant business, was partly a result of the government crackdown on corruption and the anti-waste campaign,” Leon Zhao, a Shanghai-based analyst at researcher Frost & Sullivan, told Bloomberg. “We expect overall retail sales and consumption to rise again along with the improving economy in the second and third quarters.” An improving economic outlook may help boost store receipts. China’s gross domestic product rose 7.9 percent in the final three months of 2012 from the same period a year earlier, halting a seven-quarter deceleration. The World Bank forecasts economic growth will quicken to 8.4 percent this year, more than four times the pace of the U.S. The euro area will shrink 0.1 percent, the lender projects, according to the Bloomberg report. Steeper discounts, longer promotion periods and Valentine’s Day falling during the 2013 festival were expected to help drive purchases, especially of gold and jewelry, Candy Huang, a Hong Kong-based analyst with Barclays Plc, said before the holiday. The new year fell in January last year. Jewelry sales jumped 38.1 percent over the week-long break compared with a 16.4 percent increase in 2012, according to commerce ministry figures, the Bloomberg report said. Food sales rose 9.8 percent, down from a 16.2 percent pace the previous year. The increase in garment sales slowed to 6.3 percent from 18.7 percent, the data showed, said the Bloomberg report.
China has banned advertising of luxury products on its official state radio and TV channels in an attempt to curb growing social frustration in the wealth gap between the country’s rich and poor — and stop corruption conducted through luxury gift-giving, Pambianco News reported. Such ads had “publicised incorrect values and helped create a bad social ethos,” said China’s television watchdog, the State Administration of Radio, Film and Television (SARFT), Xinhua, the country’s official state-run news agency reported, according to Pambianco. The ban includes commercials for high-end watches, gold coins and rare stamps and comes on the eve of China’s Lunar New Year celebrations that begin this weekend, the Pambianco News report said.