Economic Bulletin

RAPAPORT… Economic indicators are now pointing to slower growth ahead in the United States, but not a recession, according to an analysis produced by global research and business organization, The Conference Board. The challenge for both the Federal Reserve Board and the U.S. economy, however, is that this expected period of weaker growth is likely to have a negligible impact on inflation and short-term interest rates, forecasts Gail Fosler, executive vice president and chief economist of The Conference Board. “Rather than coming down, they are likely to remain high for an extended period or even go up,” she contends.

Over the past three months, the index of leading economic indicators has fallen relative to its level six months ago for the first time in this expansion. “While this signal is not particularly alarming, since the downturn is still rather modest, it does suggest that the economic cycle is more mature than is generally presumed,” said Fosler. She added that the current easing is still in the range of the 1995 slowdown rather than the sharper declines before the 1990 and 2001 recessions.

The Federal Reserve Board is currently operating with little leeway, The Conference Board suggested, with the overall Consumer Price Index (CPI) climbing above a 4 percent annual rate, which is the highest inflation rate in more than 15 years. Core CPI is running at about 2.5 percent, which is on a par with the rate that preceded the 2001 recession, and appears to be moving up to the 3 percent inflation rates of the mid-1990s.

“Despite the financial markets’ enthusiasm for the Fed’s restraint in August, it is hard to believe that the Fed will not have to continue to raise interest rates in the face of these inflation pressures,” concluded Fosler. “Before the Fed can actually cut rates, an event or shock of a sufficient magnitude to reverse the currently entrenched optimism in commodity markets will have to occur.”

U.S. Polished Exports Grow

The value of polished diamond imports into the United States in August 2006 was virtually on a par with that of the same month last year at $1.2 billion. On the other hand, its polished diamond exports rose 9.4 percent to $725 million. In terms of quantities, in August the U.S. imported 1.46 million carats of polished diamonds, a decrease of 11 percent, while there were 2.72 million carats of polished diamonds exported, an increase of 29 percent. All comparisons are with August 2005.

Israel Polished Exports Fall

The value of Israel’s polished diamond exports dropped 30 percent in September 2006 to $493 million, according to data released by the country’s Ministry of Industry, Trade and Labor. In addition, Israel’s rough diamond imports and rough exports both fell 35 percent to $401 million and $237 million, respectively, while its polished diamond imports were virtually unchanged in September at $355 million. All comparisons are with the same month a year ago.

Belgium Polished Exports Up

The value of Belgium’s polished diamond exports and polished imports grew in September 2006 by 2.4 percent and 5.6 percent to $1 billion and $902.8 million, respectively. In terms of volumes, the country exported 21 percent less polished diamonds or 897,515 carats in September for its $1 billion, while the number of polished carats imported for the month rose 5.6 percent to 887,516. The average price Belgium received for its September polished exports increased 29 percent to $1,145 per carat and the average price of its polished imports was steady at $1,017 per carat. All comparisons are with September 2005.

India’s Polished Exports Down

The value of India’s total cut and polished diamond (CPD) exports for September 2006 fell 11 percent to $1.09 billion, based on provisional data provided by the Gem & Jewellery Export Promotion Council. The country’s rough diamond imports were 5.4 percent lower in the same month at $785 million.

India’s net diamond account stood at $173 million by the end of September, representing a reduction of 20 percent. All monthly comparisons are with September 2005. Its calendar year-to-date net diamond account is down 21.3 percent from the corresponding nine months of 2005 at $1.49 billion.

Japan’s Unit Cost Decreases

The total value of Japan’s polished diamond imports was $60.8 million or 39.5 percent lower in August 2006, figures released by the Jewelry Trade Center Incorporated showed. India, Belgium and Israel were again the dominant suppliers, responsible for a combined 74.3 percent worth of Japan’s polished diamonds for the month. The overall quantity of polished diamonds Japan imported fell 7 percent to 196,235 carats in August.

The average price per carat of Japan’s polished diamond imports in the first eight months of 2006 dropped 15 percent to $391.40. All comparisons are with the corresponding month or period last year.

Namibian Exports Jump

The Bank of Namibia reported that the country’s diamond production and the value of its diamond exports climbed 26 percent and 59 percent, respectively, during the nation’s second fiscal quarter ended August 31, 2006. The bank did not provide figures for carat output, but did disclose that Namibia’s diamond exports for the quarter were worth $229 million.

Rio Tinto Diamond Output Improves

Rio Tinto’s diamond production increased 37 percent to 10 million carats in the third quarter of its 2006 fiscal year compared with the same quarter last year, while its diamond production rose 9 percent versus the preceding or second quarter of 2006. However, for the nine months ended September 30, 2006, the global mining giant’s diamond production total of 25.6 million carats sits 9 percent below that of the corresponding period of 2005.

Production at the group’s 100 percent-owned Argyle mine in Australia surged 39 percent in the third quarter ended September 30, 2006, to 8.3 million carats, compared with the 2005 third quarter. And at Canada’s Diavik mine, where Rio Tinto has a 60 percent interest, the company’s share of production jumped 30 percent to 1.7 million carats based on the same quarter-to-quarter comparison.

According to Rio Tinto’s quarterly production report, the rise in carat output was achieved at Argyle thanks to higher grades. But the company warned that continued variability in production levels is expected as Argyle approaches the end of its open pit life and makes the transition to an underground operation. Diavik, in the Northwest Territories, Canada, managed to deliver record carat production, despite the challenges of the early closure of the ice road in the second quarter. The record was attributed to improvements in ore throughput.

During the third quarter, Rio Tinto sold its 51.7 percent block of shares in Ashton Mining of Canada to Stornoway Diamond Corporation for C$29.6 million ($26.1 million) cash and 25.6 million or 17.7 percent of Stornoway’s issued and outstanding common shares. Rio Tinto currently focuses its diamond exploration in Canada, Botswana, India, Brazil and Mauritania.

BHP Diamond Production Drops

BHP Billiton’s diamond production at the Ekati mine in the Northwest Territories, Canada, slumped 43 percent to 487,000 carats in the first quarter of its fiscal 2007 versus the same quarter last year. In its production report for the quarter ended September 30, 2006, BHP alerted the market that as Ekati transitions from open pit to predominantly underground mining, the mix of ore processed will fluctuate from time to time. This factor led to a reduction in the number of higher value stones recovered during the September quarter. BHP has an 80-percent interest in Ekati. In June, BHP approved the development of the third underground mine at Ekati, with total development costs for the project estimated at $250 million (BHP’s share is $200 million). Underground production is scheduled to start in the final quarter of 2007.

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