Rough Market: The Unknown Angolan Factor
ALROSA reported that the Angolan mining firm Catoca posted a profit of $70 million in 2009, according to Rapaport. ALROSA owns 32.8 percent of Catoca, with Angola’s state company, ENDIAMA, holding a similar stake and the remaining third split between Brazilian conglomerate Odebrecht and Lev Leviev subsidiary LLI Holding. The mining company accounts for about 70 percent of Angola’s diamond output and its 2008 production was reported as 6.5 million carats.
While no further details were provided regarding Catoca’s performance, the aforementioned $70 million profit may be a bit misleading, given that Angola’s 2009 production remains one of the unknown factors on the rough market.
In its 2008 annual report, published in April 2009, the company wrote that the financial crisis “forced us to stockpile the diamonds we mined and obtain resources in the financial market to maintain the financial obligations assumed.” It is most likely that an Angolan state company in the mold of Russia’s Gokhran continued to buy diamonds from Catoca or at least its local parent company, ENDIAMA, through much of 2009. Then-ALROSA President Sergey Vybornov told Rapaport in June that Angolan goods were being sold at discount prices.
While we have received assurances from Gokhran that it will not dump its stockpile on the market before 2012, our concerns about the Angolan stockpile have yet to be eased, as both its size and prices could still influence the market.
Wholesale: Hong Kong Jewelry Trade Strengthens
Hong Kong’s trade in precious metal jewelry showed strong improvements in the first quarter of 2010, as expected, given the economic downturn, which bottomed out in the comparative period of last year.
The Hong Kong Trade Development Council (HKTDC) reported that precious metal jewelry exports rose 29 percent to $885 million, while imports gained 53 percent to $1.29 billion. Against the comparable period of two years ago, exports fell 17 percent, while imports increased 11 percent.
HKTD showed that the U.S. remained the largest importer of fine jewelry — including precious metals, pearls and stones — from Hong Kong during the period, accounting for 31 percent of the total, followed by Switzerland, which made up 9.3 percent and China, which accounted for 7 percent. Of its imports, 31.6 percent came from China, 19 percent were from India and 11.4 percent originated from the U.S.
The data indicate a recovery in Hong Kong’s jewelry trade in the wake of its crash alongside other global markets. As the jewelry market improves in the major consumer countries, Hong Kong is expected to strengthen its position as a hub for the industry.
Retail: Titanic Growth for One of India’s Strongest Brand
Titan Industries, a subsidiary of the Tata Group, reported that its watch and jewelry sales topped $1 billion for the first time in its 25-year history during the fiscal year that ended on March 31, 2010. Sales grew 22.2 percent compared with the previous year, with jewelry sales up 27 percent to $786 million (INR 35.04 billion) and watch sales increasing 13 percent to $230.9 million (INR 10.30 billion).
Growth at the company has become indicative of the potential in India’s retail sector, given the position of its Tanishq brand, considered one of the strongest in the local jewelry market. In a country where tastes differ based on region, Tanishq is considered one of the few jewelry retailers to have successfully gained recognition as a national brand.
Representatives from the Gem and Jewelry Federation recently estimated that India’s domestic jewelry market grew about 15 percent to around $30 billion in 2009-10, with diamond jewelry accounting for about 20 percent of this total. The trend is forecasted to continue.
We therefore expect more of the brand awareness that Tanishq enjoys to come out of India, as its middle- to upper-class population continues to grow with its economy. This would bode well for large players such as Titan, but it also presents opportunities for smaller local jewelers.
Global Markets
United States: Trading in New York is stable, with good demand for round, 0.75- to 1.49-carat, D-J, I1+ diamonds. Demand is improving across the board for lower-clarity, I1-SI2 goods. In fancies, cushions continue to be the growth item, particularly in sizes above 2 carats. There are signs of shortages in better-quality round, cushion, princess and radiant cuts. The retail market continues to edge forward, with Mother’s Day sales boosting diamond jewelry, such as hoop earrings, studs and tennis bracelets. Engagement rings are the mainstay item, with demand focused on 1- to 1.75-carat, G-H, VS2-quality round stones.
Belgium: Polished trading is stable as prices continue to firm. While the stronger U.S. dollar against the euro is encouraging dealers, there is concern that high rough prices and economic turmoil across the eurozone will weigh down further growth in the market. There is good demand for pointer sizes, as well as 1-carat, 1.25-carat and 1.5-carat, VS-SI goods, while demand for 3-carat stones is improving.
Israel: Market activity has been consistent, with many cutters and dealers traveling abroad to present their goods. Many traders are thinking ahead to next month’s JCK Vegas show to get a better feel for the U.S. market, albeit with low expectations. They also see it as an opportunity to sell off some goods left over from Hong Kong, particularly SI stones. Asking prices have edged up since rough increased at the April sights and tenders, especially for 1-carat and 3-carat stones, which are in demand. There is good demand for 1-carat stones of better makes; people are looking for Ex and Triple Ex cuts. In the 3-carat category, demand is best for VVS+, D-E and VS2+, H-I stones.
India: High rough prices continue to weigh on trading in Mumbai, especially after last month’s DTC and BHP Billiton rises. These increases resulted in some reluctance on the part of cutters to buy rough, while in the polished market, sellers are firming on their selling prices. Overall, trading activity remains upbeat. There is strong demand for pique goods across the board with very high asking prices. Demand for large items remains stable, with Triple Ex goods commanding strong premiums.
China: The wholesale market is relatively quiet, with the Shanghai Diamond Exchange (SDE) having been closed on Monday and Tuesday due to the May Day holiday and the launch of the World Expo 2010. The retail market benefited from the holiday and it is hoped this will filter greater demand downstream in the months to come. There is rising demand for 1-carat diamonds in all categories, while demand is stable for parcel goods that are 0.20-carat to 0.30-carat, H-J, VS-SI.
Hong Kong: Trading remains stable, even though the market appears to be cooling down a bit earlier this year for the traditionally quieter summer months. Buyers seem more willing to compromise on quality in order to obtain better prices on larger orders, although international sellers may be shifting these goods to the U.S. in preparation for the JCK Vegas show. Still, there is good demand for carat sizes in high colors and SI clarities, while demand for carat sizes in higher-quality categories is slowing. Large sizes above 3 carats remain strong.
