Demand Improves After Slow Autumn, But Challenges Remain
Demand for diamonds and gemstones in the United States appears to be picking up – spottily – after last fall’s doldrums. The U.S. Department of Commerce reported that jewelry sales increased by 14.7% in January compared to January 2012. Even more encouraging was the fact that jewelry prices were, on average, about 3% lower. The U.S. economy has been buoyed by a surging stock market, a growing (if slowly) employment market and reviving housing market.
In Asia, business at the recent Hong Kong Watch and Jewellery Show exceeded expectations, especially for diamond demand. Though there is slow growth in demand in China, demand for diamonds in Japan is improving and many retailers in both countries have been short on inventory.
Chow Tai Fook, Asia’s largest retailer, reported same-store sales decline of 3% by volume, 2% by revenue for the first two months of the year, noting that sales in Hong Kong and Macau were rising strongly, but those in Mainland China continued to soften.
Diamond producers from across the spectrum will welcome any improvement in the market. All told, 2012 was a challenging year: rough prices declined an average of 12% from 2011 and the diamond market was beset by high inventories, a credit squeeze and slow growth in demand from key consumer markets.
Although prices for rough and polished appear to have stabilized, the dilemma for diamond mining companies is how to manage the industry goal of reducing credit and inventories, and still improve revenues.
Several mining companies reported losses for 2012; others, including Rio Tinto, De Beers and Alrosa, are in the middle of very costly redevelopment projects. De Beers’ rough diamond sales plunged 16% last year, while its mine production also declined significantly.
BHP Billiton, which just sold its stake in Canada’s Ekati mine, reported that its diamond revenues declined 44% as Ekati’s production fell by more than one-third. Rio Tinto’s sales remained relatively flat, but underground operations at Argyle pushed the diamond division into a $43 million loss for 2012.
The leading producer of colored stones, Gemfields plc, is gearing up for a better year after reporting that its revenue fell 39 % to $27.7 million for the six months ending Dec. 31, 2012 compared to the same period in 2011. The company noted that it had conducted only one emerald auction during in that period, selling a total of 930,000 carats for $29.71 per carat. The company, which operates the Kagem Mine in Zambia, announced that it will hold more auctions this year as it gears up a new marketing program featuring film star Mila Kunis.
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