Strong Demand Continues

RAPAPORT…

The high level of demand for diamonds persisted even up to the eve of the Year of the Tiger, which began February 14. Unlike previous years, when activity tended to slow down about a month before the Chinese New Year, this year has seen buyers continue to avidly purchase up until the last few days before the holiday.

There appears to be a general shortage of diamonds, and buyers, who have seen prices rise consistently over the past two months, are beginning to feel that trend might persist in the coming months. This sense of continuing strong prices was reinforced by an increase in the Rapaport list on January 29, followed by another on February 12. Any increase in the list’s prices sends a message to consumers that diamond prices are strengthening, which, in turn, allows dealers and retailers to pass on the higher prices they have been paying for goods.

The reality of this scenario is that the price increases have been fueled purely by speculation. The fact is that rough is being held back by producers, prompting the steep escalation in its price.

Looking Up

While the whole trade applauds the price list going up, it was not too long ago that they were up in arms when the list took a dive, reflecting the price declines that came after the economic tsunami in late 2008 that continued through most of 2009. There is little doubt that, on the surface at least, the panic that existed then is over and things are starting to look up. But the fact remains that the spending deficits and national debt that existed at the beginning of the debacle are still there and, in fact, have gotten larger as governments all over the world have been printing money to finance their rescue packages.

The resulting increase in the global money supply means that paper currency has to devalue in time, which explains why consumers, as well as investors, are moving into commodities, property, equity and gold. Diamonds have also benefited from this movement, resulting in improved demand.

It would stand to reason that the increased demand would result in increasing production, but the high price of the rough has caused many manufacturers to hold back. They are not confident that they can pass on the higher prices, thereby causing a shortage that further stokes demand for polished. The financial failure of some diamond manufacturers, both locally and in other cutting centers, also has had some influence on the already-short supply of polished.

Confusion

The Catch-22 situation has many in the diamond trade in a state of confusion. While dealers and retailers are trying to catch up to the new prices, their clients are still resisting when it comes to paying higher prices. Even if retailers take the position they will hold the goods until prices go up, diamond suppliers and manufacturers keep on increasing prices, which makes it difficult to close deals. However, because of the acute shortage of merchandise available, people with inventory have been able to cash in on the present situation.

The main demand, both in Hong Kong and on the Mainland, has been for VS to SI, but the bulk of the recent price increases has been concentrated in the IF to VVS range, which has been slow for months now. Whether or not it will stimulate demand for these higher clarities remains to be seen. It is expected that buyers most probably will still choose to concentrate on the lower clarities.

Both the Hong Kong and Chinese markets are rather narrowly focused regarding the type of VS and SI they will accept but, if the demand outstrips the supply, they might well have to lower their benchmarks to fill the demand.

Barring any unforeseen swings in the world economic situation, the Hong Kong International Jewellery Fair, scheduled for March 5 to 9, was expected to be an active show, taking up the slack that traditionally follows the Chinese New Year holidays. In fact, preshow activity began to pick up in late February.

In the Chinese calendar, the Year of the Tiger usually is characterized as a rather tumultuous time and it reportedly takes great courage and cunning to survive such years. But coming off such a disastrous Year of the Ox has prepared the industry for just about anything and has fine-tuned its survival skills.

The Marketplace

• Large-stone demand continues to dominate the market, with dealers finally adjusting to the higher prices. 
• Demand has increased for K-M colors in 1 carat and larger, and clarity ranges from VVS to SI are moving well.
• Demand for SI remains strong and recent price increases, which have expanded the gap between the better clarities and SI, are expected to stimulate demand even further.
• Demand for dossiers in 30- and 50-pointers is still strong, and demand has increased for uncertified SI goods.