Summer Slowdown

RAPAPORT… The Hong Kong market slowed considerably in July, following the June Hong Kong Jewellery & Gem Fair, which was the last big chance for selling before the long summer hiatus. Surprisingly, the results of the show were better than expected, as most of the regular buyers from the Southeast Asian countries visited the show. As usual, the dominant buyers were from India, followed by buyers from Mainland China.

Unlike other recent shows, this time, buyers tended to get down to business on the very first day. In previous shows, they used the first two days to visit different booths to compare prices, before beginning their buying on the third day. Buying activity would then continue until the final days of the show, when dealers would try to buy at larger discounts if they saw that some stones remained unsold.

This time around, due to the shortage of desirable material, buyers who put off purchasing the first day very quickly realized that products they were interested in had already been sold by day two of the show. This prompted them to close deals very quickly when they saw something they wanted. As expected, buyers tried to resist the higher prevailing prices but, in the end, after some tough negotiations, they did increase their offers. If exhibitors were willing to meet the buyers halfway, business was done.

Hopefully, by the time the market resumes in late August, the new prices will have been digested and momentum will pick up, leading into the peak season for diamonds toward the end of the year.

Underlying Strength is Unchanged
 
The mood is very positive that diamond demand is sound and that, once the markets open again, business will be the same or better than the first quarter of 2010. While it is true that business in Mainland China has slowed down considerably for seasonal reasons and because consumers are unsettled by the government’s efforts to cut back on bank financing, there are still signs that this summer’s demand is better than last year’s. Chinese consumers are flush with money from the past few years of bountiful rewards from the booming property and equity markets and, even if they do cut down on their spending, their basic buying habits remain unchanged and sales at the retail level remain relatively strong.

The demand for colors below J to K is growing as some dealers feel that consumers will be more amenable to making a diamond purchase if the price points are kept low.

Fluorescence Finds a Market

The same conditions are at play in the Hong Kong market. Diamonds with bigger discounts continue to find buyers, whether they are discounted for make or clarity or because they are fluorescent. This has been a real boon for fluorescent stones, which finally are at least being considered, whereas previously they were rejected outright, regardless of price.

Top-quality diamonds in DIF, although not selling as heavily as a few months ago, still manage to be sold, but anything in the VVS grades is becoming increasingly difficult to sell. Price points for these diamonds remain too high and consumers have opted for lower clarities and colors. Even if the discounts for these higher grades increase, it is not expected to spur general demand.

Price Conscious

Hong Kong is one of the most price-conscious markets anywhere and, even while the prices of diamonds were going up at the cutting centers, buyers were claiming that there were still diamonds being offered at below-market prices. It now appears that this claim was, in fact, true. A large diamond distributor has revealed that some of its staff was selling goods cheaply without their consent. There are ongoing investigations into irregularities at the company.

In contrast to the U.S. market, where a majority of the business is done on credit, Hong Kong’s dealers are usually prepared to pay cash if goods are offered at cheap prices. This has always made Hong Kong a magnet for overseas diamond dealers facing financial difficulties who need to realize cash for their diamonds quickly. Such situations cannot last forever, however, and will ultimately boil over and be exposed. Hopefully, as the companies fail, it will mean the end of a cheap source of diamonds for the Hong Kong market, and buyers will have to go back to other suppliers to purchase their diamonds at regular prices.

For the duration of the summer, things are expected to remain at a slow pace, without any additional upward movement in prices of diamonds, even though there are now price premiums on some larger diamonds. It was not so long ago when everything was being offered at discounts, without a premium anywhere in sight.

The Marketplace
• Large stones from 5 carats to 10 carats+ in top quality continue to find buyers, even though prices continue to rise.
• Demand is stable for carat sizes in all qualities and sizes and, even though the overall market is slow right now, these goods still move.
• Heavily discounted stones — with discounts from 35 percent to 45 percent below list — are moving well and demand is strong in all sizes.
• Demand for 30-pointers and 50-pointers remains strong in VS and lower clarities. Dossiers in these sizes move well. Buyers are looking for these goods in G-J colors, especially in SI grades.