Issue 3.2, H2 2012

Issue 3.1, H1 2012
The Bourse
THE BOURSE
Issue 3.2, H2 2012
Dear Colleagues,
Best wishes for the New Year! The diamond industry has experienced its share of volatility in 2012 however market
participants are still very optimistic that the diamond industry will grow at a moderate rate in 2013. 2012 also saw a
revival of our diamond tenders with the successful completion of six auctions to date. We thank you for your support
in driving this initiative and look forward to seeing you participate in the tenders lined up in the next year.
Global Perspective
Diamond market stabilizes – recovery projected in long-term
Diamond Price Trend
Year – Over Year & Month % Changes in
Average Price of 1 Ct., Round-Cut Diamonds
January - November 2012
Polished diamond prices continued to soften in
November, declining by 0.7 percent compared to
October and by 6.2% year-over-year, according
to the IDEX Online Polished Diamond Price
Index.
IDEX further highlighted, for the first 11 months
of 2012, polished diamond prices have declined
by 4.9% from their January levels; however, they
have increased 1.1% versus the same 11-month
period in 2011.
The prices of polished diamonds of all sizes are
down due to the lethargic demand in the Far
East and India and overall volatility in the state of
the world economy. According to Rapaport, the
leading authority in diamond pricing indices, in
the new report, “Price Pressures,” polished
trading globally has slowed down with increasing
concern of the effects of the 2008 global
recession.
Source: Idexonline.com
Polished diamond prices are expected to increase in December
due to demand from retailers. This is expected to continue after
the holiday when retailers replenish their inventories.
In the mid-term, as long as the economic uncertainty continues,
diamond prices will remain low. Once the economic outlook is
brighter, demand for diamond jewellery is expected to increase
taking prices up with it.
The Bourse
Issue 3.2, H2 2012
“In 2011, diamond miners such
as ALROSA, BHP Billiton, De
Beers, Rio Tinto and smaller
companies produced 124 million
carats of rough diamonds,
valued at US$15 billion. The
value-added along the diamond
pipeline is impressive, as $15
billion in rough diamonds
becomes US$24 billion in
polished diamonds, which in turn
goes into diamond jewelry with a
resulting retail value of US$71
billion” – BAIN & Co
Rough Diamond Trade
H1 2012 has seen a decline in rough diamond trading
as compared to H1 2011, which is a direct result of the
decrease in demand in the global economy. In contrast
Dubai witnessed a 14% growth in trade of rough
diamonds in H1 2012 in comparison to H1 2011. The
average trade for the 3 main diamond centres declined
by 7% year on year to 40.3 million carats – see diagram.
Belgium’s rough imports and exports by volume fell by
18% each in the first half of the year, according to data
published by the Antwerp World Diamond Centre
(AWDC).
Also bucking the trend, India’s rough imports in fact rose
4% by volume in the half-year, despite challenges facing
its cutting sector. Market observers there note that
managers are bringing goods to the factories as a
means to keep them operating and maintaining their
workforce
Source: Dubai Customs Statistics Centre and Rapaport. Based on data
published by: India's Gem & Jewellery Export Promotion Council (GJEPC),
Belgium's Antwerp ‎World Diamond Centre (AWDC)
workforce, as they are loath to lose workers as they
did in 2008.
Polished Diamond Trade
Demand is down as the global recession has spread. The
economic boom in Asia has slowed, while economies in
the West remain sluggish at best. The average trade
value of the four biggest centres in the world for H1 2012
fell by 36% year on year to US$ 6.7 billion. Data from
Rapaport also shows that the total polished imports to the
world’s largest consumer market, USA, is down 2% and
exports fell 6% during the same period.
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India’s
fortunes have turned as liquidity is tight in the
manufacturing sector and the outlook for its retail
market remains weak. In H1 2012, the value of polished
India’s fortunes have turned as liquidity is tight in the
manufacturing sector and the outlook for its retail
market remains weak. In H1 2012, the value of
polished exports in India fell by 40% year on year while
its polished imports fell 75% reflecting domestic and
international demand has diminished.
Issue 3.2, H2 2012
The Bourse
Dialogue with
Mordy Rapaport
Director, Rapaport
“The Middle East market has a lot of potential that I
do not believe has been fully realized. The
demographics in the GCC are favorable, with a large
number of young and upcoming consumers. The
wealth in the region is substantial as well, implying
that the prospects are bright. When and how things
develop remains to be seen, but Dubai is positioning
itself perfectly to benefit from the focus on the Middle
East market that is sure to eventually occur”
What is your perspective on diamond pricing?
The dynamics of supply and demand in the diamond
industry indicates that price appreciation can be
reasonably expected in the future. Demand is
forecasted to exceed supply, with no new significant
discoveries currently expected. China and India are sure
to be the drivers of any such growth in the jewelry
markets going forward, given their demographics in
terms of young consumers and increased consumption
power.
announced supply agreement with Alrosa are but a few
examples of such occurrences.
External factors include the global and economic political
uncertainty, government changes in the USA, China and
India, as well as concerns of inflation. The shift in societal
norms should also be considered, as the disparity between
the rich and poor continues to grow. The impact of these
occurrences is not to be dismissed or underestimated.
What is the biggest challenge facing the diamond
industry?
What internal / external factor will have the greatest
impact on the market?
One internal factor that is sure to impact the diamond
trade in general and Dubai in particular is Indian
government policy. India is an extremely powerful player
in the diamond trade and their drastic policy moves of
late have caught people off guard. An example of their
policy decisions and its evident affects is the 2% duty on
the importation of polished diamonds, deterring
outsiders from participating in this market. The forced
conversion of foreign reserves is yet another example of
the drastic policies being adopted. Such policy initiatives
create uncertainty, affecting business decisions and the
overall market thereafter.
Other examples of internal factors are the AngloAmerican Oppenheimer deal, as well as the general
trend of vertical integration in the diamond and jewellery
industry. Harry Winston’s expected purchase of BHP’s
diamond interests and Chai Tai Fook’s recently
announced
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Any individual or company’s position in the diamond
pipeline ultimately dictates the specific challenges they
face. The most important component for any given
business is the customer. As vertically integrated
companies expand their activities, acquiring the customer
and eventually the end-consumer will come to be the
ultimate challenge and opportunity.
Would a spot market in diamonds be of benefit to the
trade?
Enabling the investment community to partake in the
diamond story would provide for an excellent opportunity.
While any such activity is bound to disturb the existing
environment, the benefits outweigh any perceived risks
that would be associated with such initiatives. While
transaction price data is a critical component of any such
endeavors, the lack of efficiency and transparency in the
diamond markets are obstacles that will need to be
overcome. A spot market for diamonds will eventually
emerge, one way or another.
Issue 3.2, H2 2012
The Bourse
Vertical Integration in Diamonds
Vertical integration has been a significant driver of
acquisitions in the mining industry in the past decades
and the next decade will unveil another interesting
development.
Traditional Value Chains (pre 1990)
Miners
Processers
Traders
The agreement enables the brand to secure more
reliable supplies of rough diamonds, particularly for
those specifications that are in greatest demand in
China. Chow Tai Fook is also a De Beers sightholder,
receiving goods at the De Beers sights in London,
Botswana and South Africa, as well as a Rio Tinto
Select Diamantaire.
Customers
Dubai Update
Resource Driven Value Chains (1990 – 2010)
Integrated Resources Producers
Traders
Customers
Customer Driven Value Chains (post 2010)
Integrated Mining/Processing/Trading Companies
Customers
Source: thebusinessofmining.com
For the diamond industry 2012 has been eventful in terms
of vertical integration – some highlights include:
Harry Winston buys Ekati from BHP Billiton
Harry Winston Corporation has agreed to purchase all the
assets of BHP Billiton’s diamond business for a total of
$500 million. The purchase includes BHP’s controlling
interest in Ekati’s diamond mine in Canada and the
diamond sorting and sales faculties in Yellowknife,
Northwest territories and Antwerp, Belgium. Harry
Winston already owns a 40% share of the Diavik mine,
which is about 100 kilometres to the southeast of Ekati.
Restructure of De Beers Group
Since the appointment of Philippe Mellier as the CEO of
De Beers earlier this year, a major restructuring of the De
Beers Group under one corporate identity has been
undertaken with potential impact on the auction and
sightholder models under Diamdel and DTC respectively.
In H1 2012, overall trade in diamonds in Dubai fell 7%
by volume and 35% by value to US$ 12.7 billion from
US$ 19.6 billion in H1 2011. This decline was largely
driven by polished diamonds, declining 65% to US$ 6.7
billion in H1 2012 as compared to H1 2011. The
introduction of the 2% import duty in India also played a
role in the decline of trade of diamonds.
Polished diamonds for H1 2012 accounted for 53% of
the trade value of diamonds through Dubai, while rough
diamonds accounted for 47% at a value of US$ 5.9
billion. At this rate if the trade of diamonds should
continue at this pace, the total trade at the end of the
year will be 35% less than 2011.
Polished diamonds made up 62% of the import value at
US$ 3.9 billion, while carats were equally imported for
both polished and rough.
ALROSA Signs Supply Deal with Tiffany
ALROSA signed a long-term rough diamond supply
agreement with Belgium-based Laurelton Diamonds, a
subsidiary of Tiffany & Co. in Moscow.
Chow Tai Fook Signs Supply deal of rough diamonds
from ALROSA
Hong Kong based Chow Tai Fook (the largest jewellery
group) has signed a two-year contract to procure rough
diamonds from ALROSA.
4
Rough made up 56% of export trade value at US$ 3.6
billion, while rough diamonds made up 51% of the
carats of diamonds that were exported. India, Hong
Kong, Belgium and Switzerland were Dubai’s top trading
partners for H1 2012.
Trade in rough diamonds carats increased by 4% from
Q2 to Q3 2012; however the USD value fell by 6% as a
result of the decrease in the price of diamonds.
Issue 3.2, H2 2012
The Bourse
Calendar of Events – Q1 2013
January
20th – 24th January
20th – 23rd Januray
30th January
Rough Tender:
Rapaport Auction:
Coffee Club:
February
24th – 28th February
3rd – 7th February
10th – 14th February
27th February
Rough Tender:
GIA Jewelry Professional Diploma:
GIA Diamond Grading Lab:
Coffee Club:
March
31st March – 4th April
18th – 19th April
Rough Tender:
Dubai Diamond Conference:
U
P
D
A
T
E
Dubai Diamond Conference 2013
This
forthcoming
Dubai
Diamond
Exchange event is scheduled for March
2013 and will feature special guests and
keynote speakers including Ministers of
Mines from key African nations along
with industry analysts and experts.
www.diamondconference.ae
The KP meeting in November 27 – 30 in Washington lead to the removal of the
monitoring of the Zimbabwe’s Marange diamond fields. This follows the Victoria
Falls diamond conference in Zimbabwe, where it saw African stakeholders stand
together and lobby for the removal of any sanctions. The effect of the removal
will contribute to the economic increase of the employment, and strengthen the
trade of the quality of diamond that are traded in the industry.
Highlights from the H2 Coffee Clubs
Thank you for attending the Coffee Clubs; the images are online on http://www.facebook.com/#!/jlt.dmcc?fref=ts
5
Almas Tower Level 2, Jumeirah Lakes Towers
PO Box: 48800 Dubai U.A.E
T. +971 4 433 67 11
F. +971 4 375 18 96
[email protected]
The Bourse
Issue 3.1, H1 2012