Diamond industry braces for economic hardships likely to hurt holiday sales

By Leia Michele Toovey- Exclusive to Diamond Investing News

The diamond industry is heading to Hong Kong with high hopes that strong Far East demand will sustain high price levels.

The industry is concerned that economic hardships in the US will dampen holiday jewellery demand, as Christmas is when jewellers realise the majority of their annual sales. Data released in August shows that polished diamond imports during July to the United States hit a new record at US$2.021 billion, an increase of 21 per cent from one year ago. Polished exports rose 56 per cent to US$1.279 billion. Even with such very strong activity, net polished diamond imports fell 12 per cent to US$742 million. For the month of July, the net diamond account in the United States fell 9 per cent to US$798 million. For the seven months ending with July, polished diamond imports have risen 18 per cent to US$12.35 billion and polished exports have risen 49 per cent to US$9.078 billion. The net diamond account fell 25 per cent to US$3.272 billion. Rough imports for January through July rose 11 per cent to US$546 million and rough exports fell 11 percent to US$252 million. The net rough import total rose 40 per cent to US$294 million. The net diamond account for the first seven months of 2008 has fallen 22 per cent to US$3.566 billion.

Polished imports from the major diamond centers in the world increased during July: imports from Belgium rose 20 per cent to US$393.78 million; imports rose 16 per cent from Israel to US$1.02 billion; and imports rose 28 per cent from India to US$411.98 million. Rough diamond imports rose 41 per cent to US$97 million and rough exports rose 24 per cent to US$41 million. Net rough imports rose 56 per cent to US$56 million.

Gem and jewelry exports from Thailand reached US$4.53 billion for the first seven months of 2008. The Thai Gem & Jewelry Traders Association the projected annual increase by the end of the year would be 20 per cent or US$5.92 billion, but with the current figures it looks like this figure will be topped by up to US$2 billion. Growth in the region’s diamond exports is due to sales to new markets such as China, India, the Middle East and Russia, with shipments to those markets hosting a 100 per cent increase to each.

The Diamond Business in Namibia is moving forward full steam, but is cautious of an anticipated slowdown. The Namibia Diamond Trading company (NDT) is a joint venture between De Beers and Namibia, and has resulted in some US$3.1 million in dividends paid to the government thus far. While recent business has been solid, the future outlook is not as bright. Due recent declines in production NDT is anticipating future cuts in employment levels across the diamond cutting and polishing industry.

South Africa is implementing a new diamond export legislation- The Diamond Export Levy Act- which imposes a 5 per cent levy on the value of diamond exports as a way of promoting local beneficiation. Companies may be exempt from the levy if they can show that 40 per cent of their total sales are supplied to local beneficiates. De Beers is the only local diamond miner to have signed the agreement with negotiations with other producers remaining in a deadlock. The mining companies have reportedly argued that they would rather sell the goods through the tender system, than sell it directly to the trader at a discount. As a result, the Implementation of the Act has been delayed to allow the Treasury to execute associated regulations relating to the exemptions, and is expected to be implemented by November this year. The South African Revenue Services (SARS) is responsible for overseeing its implementation.

Acting on the new legislation, De Beers Consolidated Mines (DBCM,) the mining group’s South African arm, is required to sell 10 per cent of its local production to the State Diamond Trader for distribution to smaller local diamond manufacturers; in addition to the 40 per cent of production it provides local DTC sight holders for beneficiation. As a result of signing this agreement, De Beers has announced that its September supply to South African clients would fall short of regular levels as the new legislation prevented the company from sending goods to London for aggregation.