RAPAPORT… May usually signals a slowdown in advance of the summer months. This year, that slowdown has come a bit earlier than usual. After weeks of speculation about increases in the Rapaport List, higher prices for rounds were posted on May 13, 2011, followed by an increase in the fancy cut list on May 20.
Sellers reacted to the announcements by holding on to the same level of discounts and premiums they had been using prior to the list’s price increases. At the same time, buyers, who generally feel that the market is slowing down, are concerned that they may not be able to pass on the higher prices to their customers in the coming months.
Hong Kong dealers are not keen on buying goods for inventory at these price levels, but they are willing to follow the prices on open orders. Otherwise, they prefer to hold on to their money and wait for buying opportunities from weak sellers. Those who have been buying in recent months, while gratified that their purchases have appreciated in value, also fear that prices could go on increasing, with no end in sight.
Looking to Vegas
In any case, it will take a few weeks for the Hong Kong market to digest the new price increases. Overseas diamond manufacturers were feeling more confident because of the overall sense that business is expected to be good at the jewelry shows scheduled in June in Las Vegas and Hong Kong. But there are still questions as to what the situation in the world jewelry and diamond markets — not to mention the world economies — will be at the time of the shows and whether buyers will be able and willing to pay the higher prices.
The current scenario is very different from March of this year, when there was a frenzy of buying in anticipation of the prices of diamonds going up. Now that prices actually have risen, buyers are not so sure that business in the coming months will be strong enough to justify them. In addition, it is expected that buyers will become even more selective in their buying decisions and that they will resist the temptation to speculate.
Global Economy Fragile
The global economic situation is very tentative at the moment, with Europe now the main focus of world attention. Some countries there indicate they might need financial assistance to see them through the coming months. The spread of economic crisis rumors throughout the euro zone countries serves to dampen already weak consumer and market confidence. Greece, Ireland and Portugal all have required infusions of international aid to stabilize their distressed economies and Spain is considered next in line. The effects of the recession — weak growth and high unemployment — were part of the problem, but just part. The rescued countries’ economies all were burdened with high public debt, especially in relation to gross domestic product (GDP), and huge government operating deficits. Greece, for example, the first of the bailed-out countries, had a public-debt-to-GDP-ratio of 127 percent.
Widespread fear and constant rumors just compound the crisis, rattling the confidence of consumers, financial markets and investors alike. The experience of Japan, and how it has gone into recession due to natural disasters, provided another lesson in how quickly things can change on an unforeseen, unpredictable turn of events.
Retailers in Hong Kong were disappointed with the much-anticipated May Golden Week in 2011 because this year the holiday was cut back from a week to only three days. As a result, many Mainlanders decided to spend their holidays in China rather that travel to Hong Kong. Although retail sales of jewelry in China over the weekend showed some impressive increases from 2010 (see market report on page 44), this was not the case with Hong Kong jewelry retailers. The lower number of Mainland visitors cut into their expected sales.
The Hong Kong diamond market expects to see moderate trading until July, when many of the players close for the summer, resuming normal business hours in September.
The Marketplace
- Stones 10 carats and up are in demand and there are standing orders for 10-caraters in DIF. Pairs in this size, especially in fancies, are a hot item in better colors.
- Stones of 3 carats to 5 carats are now more available, but the market seems satiated with inventory because demand for these sizes has declined. There is some hope that there will be improved movement in these sizes during the June Hong Kong show.
- Carat sizes are still a mainstay, with demand concentrated in the VS-SI clarities in all colors.
- Demand has risen for dossiers from 50 points and larger but the ever-increasing prices are causing buyers to become more cautious in their purchases. VVS goods in good colors are not moving at all. Most demand is for VS-SI in all colors.
- VVS goods in high colors, as well as in IF from E-G, are very slow. Buyers perceive these as being too expensive, and even more so now that the prices of these goods have gone up even more.
