Israel's Sarine Technologies posted a rise in revenues and operating performance in its first quarter following an improvement that began late in 2015 following the Diwali holiday in India last November.
Revenues were $15.5 million while net profit came to $3.0 million from $12.2 million and $900,000, respectively in the year-earlier quarter. The firm said the rise in its figures were due to a "more positive sentiment in the midstream of the diamond industry" driven by renewed manufacturer profitability and margins following increased sales and prices of polished diamond jewelry and lower rough diamond prices, together with increased or stable consumer demand from most markets except Hong Kong, the need to replenish depleted inventories of polished diamonds by the downstream part of the pipeline, and improved midstream liquidity following the 2015 destocking.
Looking ahead at factors that will influence its business, the company said that fundamental global economic indicators appear overall stable, despite continuing uncertainties in the global commodities markets, in general, and oil specifically. In the U.S., diamond jewelry sales data show year-on-year increases for all three months of the first quarter, with Valentine's Day sales up 4.5% over 2015, which was itself a record year for Valentine's Day sales. "The market in Japan has seen an increase in demand (possibly due to increased tourism from China), and in Europe overall demand is stable, though demand for larger polished stones has slowed, as indicated by demand at the Baselworld show in March. Mainland China experienced a minor drop in diamond jewelry sales in the first quarter of this year (typically in single digit percentages, as reported by major chains there), as compared to much more significant decreases (typically 25%) in sales in Hong Kong and Macau. The latter two regions have been impacted by Chinese government restrictions on tourism and by the taxation of imports upon returning to the mainland."
The firm said that following the downward correction primarily in the second half of 2015 and in the initial sight of January 2016, rough diamond prices have largely remained flat, with a minimal (~2%) increase in prices at the De Beers April sight (primarily an adjustment of box sortings) offset by a concurrent similar reduction of prices by Alrosa. "The estimated $1 billion combined volume of sales by De Beers and Alrosa in April 2016 (as compared to $2.4 billion for the entire first quarter) evidences the continued positive trends seen since the beginning of the year- DeBeers sights of approximately $575 million, $620 million and $660 million in January, February and April, respectively. Data also show increased buying of smaller rough stones, even as overall carat weight transacted grows (meaning more stones overall), indicating that this segment too has joined the industry recovery.
Meanwhile, inventory levels of polished diamonds remain relatively low, following the 2015 destocking, despite indications that the midstream manufacturing segment has started to replenish depleted inventories in recent months which has led to a series of monthly increases in polished diamond prices throughout Q4 2015 and Q1 2016, averaging some 5%, Sarine said. In addition, the inventory reduction in 2015 has, in turn, lowered the need for credit, by some reports by as much as $5 billion - $6 billion.