U.S. Buyers Come Back to Higher Prices

RAPAPORT… “Lost” is a word that is repeated regularly when you walk through Antwerp’s diamond district and ask diamantaires to describe the U.S. market. That doesn’t mean that there aren’t U.S. customers who continue to buy from Antwerp and other diamond centers, but there also are many U.S. manufacturers who are staying in the shadows and appear out of touch with the market’s new reality on pricing. Welcome to the new seller’s market!

Diamonds Better than Cash

“U.S. debt has been following an ascending path until it is now almost the equivalent of the total U.S. gross domestic product (GDP), and that places the U.S. economy at the verge of virtual bankruptcy,” said Shashin Choksi of Swati Gems. At the same time, he is basically optimistic about the long-term recovery of the U.S. diamond market. He bases that optimism not on the overall U.S. economy but on the fact that “the billionaires’ list in the U.S. is on the increase, just as it was even during the peak of the economic crisis. It’s to be expected that some of this new money will be spent — and has already been spent — on diamonds. The proof is in the fact that at each auction, the most beautiful stones are selling for crazy high prices. And it’s obvious that this trend is still in its early stages. You know, right now, people prefer to have diamonds rather than money.

“It’s true that inflationary pressure exists and everybody’s anticipating inflationary increases and there is a real fear that inflation could worsen rapidly,” continues Choksi. “The new Indian and Chinese customers are also buying and pushing up prices. All the goods we have right now can find a buyer, so if the customers of one market don’t want to buy, it’s easy enough to move the goods to other markets.”

Reality Check

Chaim Pluczenik of Pluczenik Diamond Co. is very serious about the need for the U.S. consumer market to face reality. “The Americans will have to adapt to the new pricing reality. The dollar is worth less, and it’s a fact from which no one can escape. Of course, there’s romance in diamonds, but nowadays diamonds are more and more considered as a long- term investment. Like all raw materials whose prices have been rocketing upward in recent years, the prices of diamonds will inevitably follow.”

“The U.S. consumers will have to get used to it, even if they’re not accustomed to accepting such changes easily,” Pluczenik continues. “If they don’t accept this new pricing structure, they may just wake up later and discover that they’re out of the market. If that happens, consumers in the U.S. might end up paying even more for their diamonds. Everybody knows today that the U.S. is no longer the consumer market. It is, of course, still a major player, but there are plenty of alternatives arising around the globe!”

Roby Taché of Taché Diamonds agrees that “There’s again interest in the U.S. in buying, but the manufacturers who are now coming back to buy are so far removed from the changes in the market that occurred during their absence that they can’t cope with the new prices. You can compare their situation to the need to re-educate a victim after a severe road accident. The U.S. consumer needs to be re-educated to the new diamond pricing reality. Right now, those consumers are in a denial phase — just saying ‘no’ — because they don’t understand what’s going on.”

Taché explains that “The fact is that the U.S. manufacturers, after over a year of absence, are seeing orders coming in from the retail end again. Consequently, they’re back in Antwerp with orders. And because they have in the past placed big orders, they’re expecting diamond dealers to adapt to their prices, which we can’t.”

Unprecedented Situation

The global diamond industry basically is confronted with an unprecedented situation, which is the consequence of several interrelated factors. First, the dollar is losing ground. Second, the U.S. market is losing its stature of dominant global market, if not in terms of turnover, at least in terms of dynamics and in the sense of “the future.”  Third, there’s a severe shortage of goods worldwide.

Where’s this all going to lead? It is difficult to say, but it does seem that U.S. retailers will have to educate their end users to expect a downgrading of quality. For the same amount of money they spent in the past, people can expect to get less. There have, in fact, been reports that offers from manufacturers for rough were some 40 percent below the actual market prices. The future price increases will be good news for some, since those who own diamonds will ultimately see their value increase.

The Marketplace

Rough:

• Indian rough is a little slow due to the summer vacation in India.
• Piqué goods are weakening.
• Nice goods are as strong as ever and very difficult to find.

Polished:

• Everything is moving; there’s nothing unsellable today.
• There’s a feeling that the market share of diamonds is eroding in favor of other luxury products and that something marketing-wise should be done globally to promote diamonds.
• There are very few goods available in the market. From Piqué 2 up, in all colors, to $300 per carat and up, everything is moving.