Demand from China is very strong and business in December and at the beginning of the year was very active. But a massive, well-coordinated January crackdown on diamond smuggling over the border into Shenzhen — in which $40 million worth of diamonds were reportedly seized — could affect diamond traffic and supplies between Hong Kong and China for the short term.
The immediate result has been that business has come to a standstill, with many diamond dealers going underground. Large firms that have more exposure also have curtailed operations for the time being. Documents giving details of Chinese clients in the smuggling ring were also seized from those arrested and the ongoing investigation undoubtedly will affect Chinese dealers and jewelry manufacturers and make them more cautious.
However, while the investigations are hurting the large companies in Shenzhen, the smaller dealers are enjoying better business. These dealers operate out of their homes, or in rented apartments in residential areas, so they are not in the spotlight and are benefiting from the void created at the moment. Demand at the retail level is still strong and someone has to fill the orders.
Suppliers from Hong Kong also are tightening up on the credit they give to smaller dealers for fear that the heightened watchfulness of government agents will impede the transfer of money to pay for the diamonds. So far, it appears that for small amounts, there aren’t any problems.
In the January 8 operation, China’s central government sent more than 100 Customs officers to replace the officers at the Shenzhen border crossings. Their target was Indian diamond dealers who regularly cross the checkpoint carrying diamonds for the Mainland diamond dealers and jewelry factories.
Although diamonds can be imported officially at a nominal duty ranging from 0 percent to 4 percent — depending on whether the stones are destined for the local market or for re-export as diamond-set jewelry — many jewelry manufacturers or retailers prefer to avoid official imports as this makes them eligible to pay higher duties when reselling the diamonds or exporting finished products.
Supply Shortages
Ironically, the smuggling crackdown — and its impact on supply lines — comes at a time when demand is strong, particularly for large stones. Normally, in the period between Christmas and the Chinese New Year, market demand for diamonds tends to slow down, but this year, demand has remained quite strong. There is definitely a marked shortage of diamonds suitable for the Hong Kong and China markets, and those that fit the bill are more expensive. Buyers, although they have been fighting to keep the old prices, are slowly relenting and are paying more if they need the goods.
Large-stone demand continues to be very strong. Any size 5 carats and over is always being sought and stones over 8 carats are in very strong demand. DIFs continue to be popular, but the main focus is on stones in the high colors in SI. These stones find ready buyers if the prices asked are not beyond reason.
The main concern for Hong Kong dealers who sell to their counterparts in the Mainland is that the Chinese dealers often are slow in making payments because they have problems sending money to Hong Kong. China has very strict controls for the movement of currency out of the country and payments often have to be made in small increments.
Looking Good
Hong Kong’s retail outlook for the coming month is good, with local stock markets, although fluctuating, still pretty high and the call for large diamonds continuing. Retailers are also counting on a good period of sales prior to and during the Chinese New Year, which this year starts on February 14, Valentine’s Day. Chinese tourists come to Hong Kong in ever-increasing numbers during any Mainland holiday. The only drawback is that instead of two selling occasions in 2010, there will only be one as both Valentine’s Day and the New Year fall on the same day.
If sales at the retail level are good during the holiday period, the market should see a resurgence of business toward the end of February and early March, which will coincide with the Hong Kong International Jewellery Fair taking place from March 5 through 9. This is the second-largest show of the year and is important to clients in the region. Business will also be active with people exhibiting at the fair because there is usually a rush for goods in the weeks preceding the show.
The Marketplace
• Demand is good for large sizes over 8 carats but supplies are restricted.
• Carat sizes are moving well. Demand is for SI in all colors and for better clarities from H to K colors. Fluorescent stones or stones with a lesser grading because of cut, polish or symmetry are becoming more popular — if they have larger discounts.
• Demand is good for 30- and 50-pointers, both in dossiers and in uncertified goods. China also is now buying SI from G to J colors because supplies of VVS goods are still limited. K-M colors are also moving well, both in pointers and carat sizes.
Article from the Rapaport Magazine - February 2010. To subscribe click here.