RAPAPORT…
Traditionally, this time of the year is one of the busiest
periods for the diamond trade because of the Hong Kong Jewellery & Gem
Fair, the largest and one of the most important and popular annual shows for
the industry. Activity and sales at the show are considered important indicators
of what business will be like in the months leading up to the Christmas season,
as well as the relative strengths and weaknesses of individual markets within
the global marketplace.
Planning and preparations begin in mid-August and build up
momentum to the show itself, which this year was held from September 19 to 25.
As usual, the show was split between AsiaWorld-Expo (AWE) at the Hong Kong
International Airport and the Hong Kong Convention & Exhibition Centre
(HKCEC) in the city.
Double Whammy
However, this year, in the critical weeks leading up to the
Hong Kong show, the diamond trade was hit by a double whammy. First, the
worldwide reaction to the threatened American debt default and the subsequent
downgrading of the U.S. credit rating sent equity markets across the globe into
a tailspin.
Secondly, the Rapaport list featured the dreaded “italics” —
indicating price drops — in a small section of the list, which raised the
concern of traders that a further lowering of the prices might be forthcoming.
In response, buyers put on the brakes and stopped buying. Only small sales to
meet immediate demands were concluded.
In the weeks following the appearance of the italicized
declines on the list, prices did soften considerably after some Indian diamond
dealers started to sell into the market. But even this sales push did not help
much to encourage sales, as buyers adopted a wait-and-see attitude in
anticipation of future changes in the Rapaport list.
A later price drop in Rapaport’s fancy shape list only
aggravated the situation as buyers took that as a signal that a change in the
rounds list was imminent. The prices of diamonds normally find their own levels
as buyers and sellers find common ground, but any movement of the Rapaport list
has a huge impact on the confidence of the buyers.
Nobody likes to buy a diamond only to find that it is worth
less the following Friday. While price declines undermine confidence, it should
also be noted that the continuous escalation of prices seen in recent months
boosted business as buyers moved to conclude purchases before any changes
occurred when the list was published the next Friday. These increases helped
carry the normally tepid June jewelry show to new highs and buyers easily
accepted the increases.
Premiums and Discounts
While buyers have not been happy with the big premiums and
small discounts that have prevailed recently, sellers attributed them to the
high cost of the diamond rough. Now, the situation is quite different as rough
prices have tumbled and all the premiums that existed previously have vanished.
In fact, dealers are now coming, cap in hand, trying to sell rough. Traders and
manufacturers are prepared to adjust their prices and even take a loss on
expensive inventory if they can replace it with the deflated rough.
Demand is still in place, especially in the Far Eastern
regions, with the exception of Japan, which is still recovering from the
natural disasters it faced early in 2011. At a price, diamonds can still be
sold, but in this volatile economic environment, there is a great deal of
confusion as to what is a safe investment. Even gold, which soared over $1,900
an ounce, has retreated by $200.
Although everyone accepts some fluctuation in the value of
their investments, they want reassurance that their holdings will retain value
in comparison to other investment instruments. The diamond industry clearly
remembers 2008, when diamond prices headed south and discounts fell to 50
percent and more — and it doesn’t want to see that happen again.
Banking Pressure
Banks are under pressure from their comptrollers to increase
their reserves to weather the turmoil brewing in the European countries. The
banks, in turn, tighten the screws on their clients by cutting their credit
lines and accelerating loan repayments. That scenario has caused some weakness
in the Indian diamond market, which explains the lower prices for diamonds sold
in Hong Kong in recent weeks.
There is, however, a ray of hope. Prices for large goods
have softened slightly but the demand remains strong as a shortage of these
sizes still exists. Highly desirable goods in better colors in VS and SI
continue to sell well.
Ahead of the industry is the October Golden Week in Mainland
China and the Christmas season. Even if there is a decrease in demand as
compared to the double-digit increases seen over the past two years, the Hong
Kong and China markets are still big and should perform better than Europe or
the U.S.
The Marketplace
- Large stones over 5 carats, especially 10 carats and
larger, find interested buyers. - Goods from 3 carats down to 1 carat, in high colors in
VS-SI and in low colors from VVS2 to SI, are still moving. - Prices for small Indian setting sizes have retreated, but
the high price of gold and platinum means that the prices for finished jewelry
are meeting stiff resistance from buyers. The ultimate consumers for low- and
medium-price jewelry will be more hesitant to buy in the rest of 2011, because
concerns about unemployment and inflation, as well as economic uncertainties,
bear heavily on this buying sector.
