Issue 4.8, August 2013

Issue 3.1, H1 2012
The Bourse
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THE BOURSE
Issue 4. 8, August 2013
Dear Reader,
As we move into the second half of the year, all trends point to growth in the industry and increase in activity. Demand
has been strong but the industry is struggling with liquidity and price pressures. There are also interesting patterns that
could suggest a change in the traditional dynamics of this sector. Traders’ susceptibility to currency fluctuations as well
as availability of capital is making the diamond industry behave more like other traditional commodity markets. Cutters
need to account for increased competition from recycling flows and producers acknowledge how synthetics continue to
move closer to the mainstream wholesale trade.
Sincerely,
Franco Bosoni
Director, DMCC Commodity Services
Dubai Rough Trade of Diamonds (Carats)
Dubai Rough Trade August 2013
Import (Cts)
Export (Cts)
Total Trade (Carats)
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A total of 43 million carats were imported at a
value of US$ 3.2 billion, while the export was
at 45 million carats with a value of US$ 4.7
billion.
Price performance
Rough – Varda Shine, De Beers Executive
President of global sight-holder sales stated
“De Beer’s rough diamond prices have
increased with a 4-9% fluctuation, since the
beginning of 2013... Certain categories of
rough have even seen double digit percentage
growth. Overall, retail sales are better,
inventory levels generally dissipate. US
economical indicators are improving. It’s
looking like a good year. “
Shine also added that “While the pace of
Chinese demand is expected to slow, it is
expected to produce a double digit increase
this year. The 0.20 - 0.90 carats polished
goods have shown the strongest growth so far
this year. “
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Million (Carats)
In the first 8 months of the year, the trade
volume of rough diamonds in Dubai increased
by 14% to 88 million carats, and the value
increased by 6% to US$ 8 billion in
comparison to the same period last year.
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8
6
4
2
0
Source: Kimberley Process, Dubai
Polished – July witnessed a fall in prices as a result of the decrease in
demand for jewellery in India and China. RapNet Diamond Index
(RAPI) showed that 1 carat certified diamonds fell by 2%. It declined
3.7% during the month for 0.30 carat diamonds, 3% for 0.50 carat
diamonds, and 1.3% for 3 carat diamonds.
According to the Rapaport monthly report, "The certified polished
diamond prices fell in July due to China's economic slowdown, which
significantly reduced diamond demand resulting in overstocked retail
inventories. The Indian domestic jewellery market also plummeted due
to the weak Rupee and government programmes intended to curb gold
consumption".
Furthermore, diamond manufacturers are facing tight liquidity because
banks are becoming increasingly concerned about the soaring levels of
industry debt and high rough diamond prices, which result in negative
cash flows. As per the Report, the only bright spot has been the US,
where demand has been steady but selective. Source Rapaport
Issue 4.8, August 2013
The Bourse
Martin Rapaport, Chairman
of the Rapaport Group, said
at the IDC 2013:
"Miners are raising prices and
rough is ahead of polished. So
why manufacture diamonds
when it is so hard to make
money? It seems better to just
buy polished."
Rapaport International Diamond Conference (IDC) 2013
The 2013 IDC focused on the future of the diamond and
jewellery industry, with emphasis on the role of India.
Topics ranged from rough to retail, and how to thrive in a
rapidly changing global business environment.
Attended by approximately 300 people, the IDC began
with a morning discussion focused on India’s regulatory
and banking environment. Suresh Surana, the Founder
of RSM Astute Consulting said, “The banks are
reviewing the quality of companies’ asset cover,
collateral and balance sheet. Due to the lacklustre
performance of gem and jewellery companies in the
capital markets and tighter bank credit, fund raising will
be more of a challenge and companies will be required
to seek out innovative instruments.”
Surana presented an update on regulations, such as the
Companies Act 2012, that will affect India-based
diamond and jewellery companies, as well as an update
on transfer pricing regulations in the country, rules
governing foreign direct investment and anti-money
laundering legislation.
Vishal Doshi highlighted the main challenges currently
influencing the manufacturing sector in India from margin
pressure to beneficiation in Africa. “Rough consumption
is down and the resulting excess capacity creates
additional pressure on margins,” Doshi said.
“Furthermore, the diamond content of retail jewellery
sales has declined from 33% to 30%. So it’s quite
evident who’s making the money.”
Ezriel Rapaport, the Director of Trading at the Rapaport
Group, indicated that with more diamonds being made
available for re-sale in the US today than are mined in
South Africa, recycled diamonds are an interesting trend
that seems to be growing.
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Sachin Jain, the Managing Director of Forevermark in
India, a De Beers retail brand; Sandeep Kulhalli, the Vice
President of Marketing and Sales at Tanishq, India’s
largest diamond jewellery brand; and Ghanshyam
Dholakia, the Managing Director of Hari Krishna Exports,
a diamond manufacturer and wholesaler, all shared their
insight on building brands and engaging customers.
B.S. Nagesh, the founder of TRRAIN, Shoppers Shop,
highlighted that the 35 to 55 year old consumers are the
new and emerging target for retailers since that’s the age
range with spending power.
Marc Brauner, the Co-Chief Executive Officer of
International Gemological Institute (IGI) worldwide, urged
the industry not to fight the growing trend of synthetics
but to embrace it in order to ensure full disclosure of
synthetics when they come into the market. He estimated
man-made diamonds are projected to grow in production
value from US$ 500 million last year to more than US$ 1
billion in 2014.
Mehmet Can, the General Manager of HRD Turkey,
agreed in light of the increasing difficulty to protect the
retail market from undisclosed synthetics. He further
suggested that certification of goods below 0.30 carat
sizes will help secure the largest part of the market.
Martin Rapaport concluded the conference by stressing
that there are great opportunities for the development of
legitimate, transparent, efficient and competitive markets.
“While short term market outlook is problematic, there is
great long term opportunity of firms that legitimize their
operations, avoid unsustainable subsidies and diligently
cease unprofitable activities,” he said.
Source: Rapaport Weekly Report
Issue 4.8, August 2013
The Bourse
Pranay Narvekar, Consultant, Pharos Beam
The two major requirements for a successful diamond centre are security and low
transaction costs and Dubai has managed to get both of these factors together,
which has resulted in its meteoric rise as a diamond centre.
The only other aspect, which a diamond market requires, is access to finance.
The diamond business has historically followed the finance availability, and better
and more transparent access to finance will help cement Dubai’s place among the
world’s top diamond trading markets.
Further, the diamond trade is seeing an increasing squeeze on margins. Hence
the business will gravitate towards lower cost locations. Any centre, like Dubai,
which ensures that it can provide continued low transaction costs for the industry
will thrive.
Pranay is an independent consultant who focuses on
demand and supply, strategic, financial and structural
problems of the diamond industry. He has over 12 years
of consulting experience, and had worked with Rosy
Blue for nearly five years. He shed light on an
interesting predicament in the diamond industry in his
article titled “Chakravyuh” in Solitaire International.
Diamantaires have always played a valuable part of the
diamond pipeline. During the 70’s and the 80’s, the
midstream typically added nearly two thirds of the value
of the final polished sold to consumers. By the 1990’s
this had settled to about 40%, as technology coupled
with production capacities in India ramped up. The
value addition showed the most noticeable drop in the
2001-2007 period as diamond polishing industrialised,
and India emerged as the premier diamond polishing
hub, even while production was being increased.
Over the same 20-year period, in gross dollar terms, the
value addition in the industry has remained flat. During
the same period, the dollar has devalued by more than
45% in real terms due to inflation, which increases the
cost of doing business. Simply put, in a like-to-like
comparison, the industry earns only 55%, in adjusted
dollars, of what it did 20 years ago.
The decrease in margins fundamentally affects the way
the business is financed. As midstream businesses felt
the pressure of reducing margins, a natural reaction
was to increase the leverage in the business, to ensure
that their returns on equity were healthy.
Global banks with specialised industry expertise have
been voicing their concerns for over a year. They have
been paring down their lending and exiting certain
accounts they are not comfortable with, even at the cost
of write-offs.
The industry should not bank on stock price rise to
shore up profitability from operations. Leverage means
higher risk. The diamond industry, like the rest of the
world, needs to de-leverage.
Article courtesy Solitaire International
(www.solitaireinternational.com)
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The DDE team caught up with Pranay on his recent trip
to Dubai and got his insight on the market.
According to Rapaport, the prices of polished
diamonds have fallen drastically; please explain why?
In 2013, polished diamond prices initially strengthened, and
have subsequently fallen. However, overall prices can be
called flat for the year. In certain categories (less than 2
carats), prices could have fallen. What you see is that
demand is becoming more fragmented and certain
categories of goods move differently than the entire market.
In the current scenario, the cheaper goods are holding their
prices much better than top quality goods as consumers,
especially in China, have moved to lower quality goods.
What is the biggest challenge for the rough diamond
sector today?
The biggest challenge in the rough diamond sector is that of
high expectations from mining companies. Post August
2011, polished prices have corrected significantly, but the
rough prices have not sufficiently corrected. A healthy
rough diamond sector requires rough prices to be
sustainable, i.e. provide adequate margins for polished to
be produced and sold. For that to happen, rough prices
would need to move down by an average of 5-10%, which
will bring the zest back into the rough diamond sector.
What is your projection of the diamond price for the
end of 2013?
Overall diamond prices will continue to remain flat,
especially in polished. Demand is still there, even if the
growth might not be as high as expected. On rough prices,
it’s much more difficult to forecast prices, as liquidity plays a
major role, and that cannot be predicted. Overall rough
prices could see a 5-7% downside.
Is the decline in the price of gold having an effect on
the diamond industry?
In most markets, gold prices do not have a huge impact on
the diamond industry, as the content of gold in diamond
jewellery is small. The exception to this is India and China,
where gold is also considered as an investment. Any drop
in gold prices, pushes people to buy gold, which might
affect diamond sales and vice versa.
Issue 4.8, August 2013
The Bourse
Market Updates
Fall in Rupee is expected to reduce demand for
polished diamonds
As a result of the record fall of the Indian Rupee against
the US Dollar, small and medium sized diamantaires,
who make up 40% of the polished production, are finding
it expensive to purchase rough diamonds. As a result
production of polished diamonds is expected to fall by
20-25% ahead of the Indian festival of Diwali.
The President of the Surat Diamond Association (SDA),
Dinesh Navadia, told Times of India, "Diamond
manufacturers have a responsibility towards their
workers to keep the units operating with sufficient output.
But the small and medium factories are refusing rough
purchase due to the price uptrend and the record fall of
the Rupee."
A De Beers sightholder said, "The diamond companies
are facing heavy pressure for selling polished diamonds
in the domestic market. The diamond consumers are
reluctant to pay the high price due to the fall in the
Rupee against the Dollar. This year's diamond jewellery
sale on Diwali is likely to remain on the lower side."
Each Synthetic Diamond Certificate will include the same
unique safety features as the standard HRD Antwerp
natural diamond certificate.
Liberia has discovered a Kimberlite pipe
A Kimberlite pipe located in the Camp Alpha region of
Cape Mount Country has been discovered in Liberia
(Western Africa). The Kimberlite pipe has a 438 metres
length and a width of 45 metres.
Mining Weekly quoted company Chief Operating Officer
John Bristow as saying that the discovery of what
appears to be a Kimberlite pipe was made by Steve
Haggerty, Chief Executive and Chief Exploration Officer
of Youssef Diamond Mining Company (YDMC).
“It’s nice to see some new discoveries coming to the
fore,” said Bristow. “It’s a long-odds game.”
A Kimberlite pipe with an associated Kimberlite fissure
system is most likely the source of the diamonds that
have supported a downstream alluvial artisanal diamond
mining community for the past 70 years.
Coffee Club
Kimberley Process launches new website
The Antwerp World Diamond Centre (AWDC) has
announced the launch of the revamped Kimberley
Process (KP) website. AWDC is a member of the
Administrative Support Mechanism (ASM) that was set
up this year by the World Diamond Council and KP. The
ASM will provide logistics, organisational and
communications support to the KP on an ongoing basis.
The new site has been designed to make it more user
friendly and to provide comprehensive tools and up-todate KP information. It also gathers and streamlines KPrelevant news, contact data, and official documents
along with providing an updated events calendar. The
platform provides both KP participants and external
parties with more extended tools to manage or find
information.
HRD starts certifying synthetic diamonds
According to Rough-Polished.com, HRD Antwerp has
announced that they will launch their Synthetic Diamond
Certificate from September onwards. The certificate from
HRD will be used to classify the diamonds as either
synthetic or natural; if they pass to be synthetic a
certificate will be issued with all the relevant details.
The Certificate will be clearly different from the natural
diamond certificate and mention “Synthetic Diamond
Certificate” on the cover. The synthetic diamonds will be
laser inscribed as “synthetic” and the same description
will be mentioned on the certificate with a statement that
the diamond has been lab-grown.
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Almas Tower Level 2, Jumeirah Lakes Towers
Save the Date –
Next DDE Coffee Club
on 23rd September
(Monday)
Calendar of Events – Sept-Oct, 2013
September
IGI course – Professional Jewellery Design:
DDE Coffee Club:
DDE Rough Tender:
8 – 3 Oct
23
29 – 3 Oct
October
IGI Polished Diamond Grading:
IGI Rough Diamond Grading
DDE Coffee Club:
23 – 29
27 – 2 Nov
30
* GIA courses will run at DAFZA during the Sept / Oct months
PO Box: 48800 Dubai U.A.E
T. +971 4 433 67 11
F. +971 4 375 19 00
[email protected]
The Bourse
Issue 3.1, H1 2012