We publish courtesy of Gems & Gemology’s G&G GIA Insider
Author: Russell Shor, Senior Industry Analyst
The rough diamond market continues to run much hotter than the polished market. The Diamond Trading Company’s Oct. 4-8 sight, initially estimated at $425 million, increased to nearly $500 million as clients requested additional allocations.
The DTC held the line on prices, but rough sold at tender auctions from other producers and the DTC subsidiary Diamdel was reportedly up 10% or more from the previous month.
Alrosa, the world’s second-largest producer, announced rough sales of $2.53 billion for the first nine months of the year, an increase of nearly 50% over 2008 (the last “normal” year). However, price increases accounted for more than half that figure. The company expects its 2010 rough sales to total $3.3 billion (compared to DTC’s estimated $5.8 billion). Alrosa’s production was mined in Russia, except for about $450 million worth from Angola’s Catoca mine.
At odds with the continued high demand for rough is a very cautious polished market worldwide. As noted in last month’s Insider, buyers at the Hong Kong show were walking away from high polished prices that attempted to recoup up to half the rough increases. In the U.S., retailers are downgrading qualities and sizes to keep costs down.
U.S. retail jewelry sales have been running an estimated 3% ahead of 2009 levels, less than the 4% to 5% forecasted earlier this year.
Deloitte and the International Council of Shopping Centers predict that holiday retail sales overall will hover around 2% to 3% over last year, with jewelry falling within that range.
ZIMBABWE: Kimberley Process delegates will meet next month to determine whether to certify exports of rough diamonds from Zimbabwe’s Marange deposit. Zimbabwe’s government recently auctioned 1.3 million carats under KP supervision. The prices realized, coupled with reports from the area, indicate that the proportion of gem-quality diamonds is more than double the initial KP estimate of 5%. And the amount of near-gem material (destined for India) is reportedly 35%, which rivals Argyle. This means that as much as half the Marange production could be cuttable.
The huge size of the deposit, spread over hundreds of square miles, makes it difficult to properly survey — one reason Marange took the diamond world by surprise. Some estimates claim it could produce 40 million carats annually, which would make it the world’s most productive diamond area.
Ongoing concern over Zimbabwe’s human rights record and the fact the KP approved the rough diamond exports despite a U.S. ban on trade with that nation, is prompting talk of a two-tiered Kimberley Process system.
Proponents of this plan, which the U.S. State Department will reportedly promote at the November KP meeting, say the current system is too narrowly focused on “conflict” diamonds — diamonds sold by rebel groups to fund wars — and does not take into account human rights abuses by recognized governments of producing nations (i.e., Zimbabwe). They are also frustrated with the KP requirement of a unanimous vote by its members before it can initiate any action.
Opponents argue that a two-tiered KP system would create a “favored” diamond track for large producers such as De Beers and Rio Tinto and for branded Canadian diamonds, while casting unwarranted suspicion on diamonds from smaller producers.
MACRO: Spending Pulse noted that through the first nine months of 2010, online retail sales for all merchandise categories posted a 7.8% year-over-year growth. Online jewelry sales for September, however, fell 5.9% against the previous year. The luxury market research group also noted that September was the only month this year to record negative growth for the online jewelry category. Blue Nile, the largest online jewelry seller, reported a year-on-year sales increase of 9.7% for the second quarter (ending July 4) but has noted slower third-quarter sales (not yet announced).
The world’s two fastest-growing economies, China and India, are also increasingly important diamond markets. Both are on target for economic growth of about 10% this year, according to an International Monetary Fund (IMF) report.
The IMF’s latest World Economic Report says the Chinese economy will grow 10.5% in 2010 and 9.6% in 2011, driven by domestic demand. India’s gross domestic product will expand 9.7% in 2010 and 8.4% in 2011, as a result of strong industrial production.
The IMF noted that mature Western economies, continuing their slow recovery from the economic downturn, are forecast to grow 2.7% this year and 2.2% in 2011.