Diamonds and precious stones
General sentiment seems to be improving, at least in the larger stone segment, and I note that Gem are to pilot viewings in Israel in addition to those help in Antwerp which could help in firming up demand, especially as not all the buyers travel to Antwerp. This could be interesting at a time when the larger segment (3ct+) is the only category to demonstrate a positive return both in 2017 and year on year implying some very interesting underlying trends, in line with our longer term thesis.
Looking forward, as we move into the all-important retail period, of which at least 25-30% of annual jewellery profits are generated, an interesting statistic has emerged when combining Black Friday, Thanksgiving and Cyber Monday in the US against Alibaba’s 11th November “singles day”. Yikes.
Hopefully, we can start to see an end to the TV coverage of scrambling hoards rushing into Dixons in the hope of securing a new flat screen TV.
In other news, I saw the new kids on the block, Fura Gems headed up by the former Gemfields CEO/CFO Dev Shetty. Many, many of you have expressed displeasure with the way that that company was taken from shareholders, so if I told you Fura have acquired an emerald mine in Colombia and rubies in Mozambique but don’t plan on acquiring a retail franchise that previously sold a famous aftershave, I bet a few of you are now sitting a little more upright. Much, much more to come from these guys.
Mr French and I are set to continue our quarterly roadshow with the North of England and Scotland as destinations next week. After that we are happy to do ad-hoc meetings/presentations, so do get in touch if desired.
At the moment it feels as though gold remains in no man’s land, at least in the short term as the prospect of another rate rise in December looms, but given some of the macro concerns around core inflation, net global QE and the fear of a resurgent Dollar it will be interesting to see how things play out post the December
Oh and I have seen this week that Gold demand “collapsed” in Q3 with quarterly demand at its lowest since 2009. On the face of it, not good news especially when considering ETF demand fell from 144t in 2016 to just 19t in 2017 (did anything happen in Q2 and Q3 of last year that may have skewed the results!?), jewellery is broadly flat by Central banks are again buying; +25% yoy whilst physical coins and bars remain in demand; +17% yoy.
More of a concern has to be this:
It’s all too much to take…
Some interesting thoughts emanating from LME week and from the recent SMM webcast (SMM are a Chinese focused metals specialist based in Asia). Whilst the declines in global inventories are undeniable ever since Glencore et al cut production levels (GLEN cut c4% of global production), many commentators are now asking the questions as to when the shut-in capacity will return?
Given the underlying strength in pricing I would say not too long, but it doesn’t mean the golden (or galvanised) goose would be cooked. As the changes in the Chinese supply picture continues to move towards a more import driven model as the quality and availability of domestic ore declines and whilst little information exists on this exactly, we can derive that lower discounts on higher quality concentrates (a trend throughout 2017) that the experiences in iron ore may well be permeating to other commodities.
The Chinese winter games and environmental restrictions will, in the short term, see lower demand, but as we emerge from the colder weather, as with iron ore, expect to see a significant price divergence between lower and higher quality product. Back to that old mining adage – “grade is king”
Iron ore prices have had a bit of a pop this week as Chinese steel producers have started to implement production cuts in line with Government ordered production cuts to reduce energy consumption and emissions during the winter period. As a result steel prices have rallied but none of this is new news.
One assumes this is more a case of last minute panic buying instead of a significant reversal of trend at this time.
As a reminder, our view was that iron ore prices for the 62% benchmark would head back to the $60-65/t range by the end of the year when they were trading in the heady highs of $80/t recently. The current spot is $61/t and we see little, other than low liquidity spikes either way at least until early 2018.