The news was expected. Tiffany & Co. reported seasonal sales declines for its North American stores and Signet Corp, which operates Jared, Kay Jewelers and Zales, saw much lower growth this past season. Anecdotally, the U.S. market saw good growth at the high end, while middle market customers traded down.
Blue Nile, the largest e-commerce jeweler, also noted that fourth quarter sales were below its expectations, clocking an increase of 7.9% and yearly sales growth of 5.2%. In 2013, the company saw its seasonal sales rise 7.2%, but recorded a 12.5% increase for the year. They have just announced plans to open their first brick and mortar store in a significant retail mall in the U.S.
AUCTIONS: The two major auction houses had a successful year, again set many price records for top diamonds, gemstones and signed jewelry pieces last year. Combined, Sotheby’s and Christies’ reported jewelry sales of $1.34 billion in 2014, about 5% over a record-breaking 2013.
Sotheby’s, which recorded sales of $602 million, achieved the highest per-carat price of any gemstone sold at auction at a New York October sale: $3.35 million for the 9.75 carat (ct.) Fancy Vivid blue “Zoe Diamond,” which went to a Hong Kong buyer. At the house’s Hong Kong auction in October, the record pre-carat price for a Kashmir sapphire was broken twice; the second time within minutes of the first.
The first sapphire was a 12.0 ct. step cut mounted by Cartier, which drew a final price of $2.32 million or $193,975 per carat, beating the record set last year by just over $13,000. A few lots later, however, an Asian collector paid $4.01 million for the 17.16 ct. “Imperial Sapphire.” At $236,404 per carat, it easily topped the price mark that had just been set. . A month later in Geneva, Sotheby’s sold the Graff Ruby for $8.6 million or $997,727 per carat – a record price both overall and per carat for a ruby.
Also in Hong Kong, Christie’s, which sold $740 million in jewelry last year, auctioned a 2.09 ct. Fancy red heart shape diamond, graded by GIA, for $5.09 million or $2.44 million per carat. It was the highest price ever paid for a red diamond at auction and the second highest per-carat price ever paid for a gemstone.
DIAMONDS: The industry will be carefully watching the Feb. 23-27 De Beers sight. January sights are usually among the largest of the year, but the company’s Jan. 19-23 sight was the smallest in some two years – $450 million – and the smallest January sight since the economic crisis. In addition, De Beers reportedly lowered prices an average of 4% and gave clients the option to defer up to 25% of their allocations to future sights.
Manufacturers claim the price reductions still have not made some goods – notably those polishing to half- to one-carat diamonds and lower color small stones – profitable to work and estimate that 20% of the sight goods were deferred. Post-Christmas orders have been slow, reflecting high inventory levels in all but the most popular sizes and qualities. The diamond industry is also still coping with liquidity issues stemming from deep credit cutbacks by the banks that finance the industry.
While many manufacturers would like to see even lower prices – rough prices declined an average of 7% last year –De Beers is treading a thin line. If it reduces prices too quickly, its largest clients will find their inventory values suddenly reduced – along with the available bank credit, which already has been significantly curtailed. Further price reductions would certainly guarantee that clients would defer their full allowance of 25% in hopes of getting cheaper goods down the line.
In times of falling prices and stagnant demand, mining companies usually shift their operations to lower grade portions of their deposits and direct more of their operations towards maintenance.
Accordingly, Dominion Resources, a partner with Rio Tinto in Canada’s Diavik Mine, reported that fourth quarter production dropped 25% compared to the year before. The company plans to ramp up production later in the year to bring its yearly output close to its average of 7 million carats per year. Production at Australia’s Argyle Mine fell 43% to 1.813 million carats during the quarter. The company’s 78% share of output at the much smaller Murowa mine in Zimbabwe fell 4% to 101,000 carats.
The one producer that does not appear to be cutting back is Russia’s Alrosa which recently announced record sales for 2014 (just over $5 billion) and a plan to sell more this year, including two million carats it had kept in inventory. Of course, the move is prompted by Russia’s dire economic straits following sanctions from the U.S. and E.U., coupled with falling oil and natural gas prices. The $5 billion-plus in diamond sales will help break the free fall its currency, the ruble, has seen in recent months. Alrosa announced that it produced 36.2 million carats during the year and sold 39 million carats into the market. The inventoried goods were mainly industrials and very low quality goods for the mass jewelry market. This year, it plans to sell 40 million carats.