Rising Wages, Prices Impact Market

RAPAPORT… Although the China market is going into slow gear for the summer months and there is a lull in the overall market, buyers are still shopping for specific goods. There is demand for certain types of diamonds, and buyers are not averse to keeping these in stock.

High-quality diamonds in SI clarity in all colors are selling like candy. As long as the type of inclusion matches the local market’s taste, these stones are moving briskly. Sizes of 3 carats and larger in these goods are practically nonexistent in the market. There are always regular calls for these goods but it seems that no one has any in stock.

The same goes for goods in the K to M range in pointers and larger. Apparently, the China market has started to get accustomed to these colors and their appetite for them is growing. Prices have gone up considerably for these goods but they are reaching a price barrier. The biggest buildup of inventory appears to be in high colors in VVS goods as these are extremely slow moving.

High Prices A Roadblock

For the market as a whole, the one drawback at the moment is the high prices, which are meeting with stiff resistance from buyers in the region. Buyers are trying to mop up goods from any weak sellers by negotiating hard on prices but, in the end, many have adjusted to paying higher prices when necessary to get the goods.

However, the trend is moving toward goods trading with bigger discounts, whether due to the cut or fluorescence. Some suppliers are happy to get rid of these stones and don’t mind holding on to the better qualities in their inventories, even if they are not moving at the moment, because the feeling is that higher-quality diamonds always will find a buyer eventually.

The China market, big as it is, has been slowing down over the past months as exports are falling. As a result, demand for diamonds has also slackened.

Another factor in the slowing market is the big increase in the cost of production in China. No longer is it the cheapest place to manufacture. A string of employee suicides in one factory that produced iPhones and other Apple products was blamed on the heavy workload, overly stringent management and low wages. When this news broke in the headlines, several car factories went on strike and the result has been that wages have gone up dramatically in these factories.

The danger is that this increase in labor wages — and costs — might spread to other regions and industries. The jewelry manufacturers from Hong Kong rely mainly on their Chinese factories to produce their merchandise. These producers already have seen their profits sliced to razor-thin margins as demand has fallen, and if wages continue to rise, it may well be the death knell for many jewelry manufacturers. They are feeling the pinch of being unable to sell to the U.S. market due to the credit crunch, but now they are seeing the same thing happening in the European markets. The hope is that with domestic workers earning higher wages, the Chinese market will become more of a consuming market of jewelry and diamonds.

What the Shows Tell Us

Two very important jewelry shows occur in June. The first is the JCK show in Las Vegas that was held on June 4 to 7 and the second was the Hong Kong Jewellery and Gem Fair on June 24 to 27.

Reports from the JCK show were that activity was rather subdued. While some exhibitors did sell fairly well, as a whole, the amount of business transacted was far less than expected from a show of its caliber. Exhibitors in the June Hong Kong show were not expecting great things, but one can never predict actual sales results because it all depends on who comes to the show.

A fair number of buyers from the Far East did visit the Vegas show — an indication that these regions are interested in buying — so it is expected that with the proximity of Hong Kong to the Asia markets, the number of visitors from neighboring countries will carry that show. As usual, the stalwarts of the show will be the Indian buyers, who religiously attend all the Hong Kong shows. Since the market in India is still relatively strong, there should be a fair amount of business coming in from there.

The main demand at the Hong Kong show was expected to be large stones, of course, and some buyers began canvassing some of the exhibitors in advance of the show’s opening to see what they would be bringing to the show. The Hong Kong show, however it does, is always an important show because it represents the last salvo before summer.

Crackdown on Smuggling

In other action, Chinese Customs is taking a very aggressive stance against the smuggling of diamonds into the country. Recently, customs officials confiscated a large amount of diamonds being brought into the country by an Israeli company. The goods are now under the control of customs and some of the staff of the company was being held in custody
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The Marketplace

• 3-caraters to 10-caraters in all qualities are in big demand. The exception is 4-caraters, although even these move if the price is attractive enough.
• Oversizes are keenly sought after, especially 3.50-carats and larger in high colors, both in better clarities and in SI.
• 50-pointers are moving well. 80-pointers, although keenly sought after, are almost nonexistent.
• Carat sizes are still moving relatively well in all colors. Demand is stronger for high colors in SI, H-I in VVS and K-M in VS-SI.