Rapaport Magazine

Dropping Prices Scare Buyers

Hong Kong November Market Report

By Gaston D’Aquino
RAPAPORT...


September to November is usually the busiest time for diamonds in Hong Kong, but this year, after a lackluster September, October was extremely quiet. Jewelry retailers, both in Hong Kong and the Mainland, were busy, especially during the two weeks around Golden Week in October. But both traders and retailers have been reluctant to buy diamonds for fear prices would go down.

In fact, prices did come down as cheaper diamonds became more available because of the credit squeeze in India. In addition, the October 7 Rapaport list lowered prices on sizes from 30 pointers to 2 carats. The declines generally were considered modest and were well accepted. But the move left the market wondering if and when prices on the 3-carat-and-larger category would fall.

Problems Predicting Prices

A general sense of uncertainty and confusion is keeping the market from moving ahead. There was a time when dealers active in diamond trading were confident about their ability to assess demand and to determine how and where their goods fit into the marketplace. Price changes were more gradual and incremental and predictable.

That is not the case today. Global economic forces outside their own industry and beyond their control have eroded dealers’ confidence in predicting demand, in controlling inventory and in pricing their merchandise. Even when new prices are introduced, dealers wonder how long they will hold.

The present economic climate remains unstable, and the roller coaster continues in equities, property and commodities. But the search for a place to park wealth continues to dominate and art and expensive diamonds are being bought to do just that. There are still calls for larger stones. Buyers from surrounding markets regularly surf the web looking for diamonds.

The iPhone Lesson

The recent release of the iPhone 4S is a good example of the buying climate. Although it is not the anticipated iPhone 5 — which was on everyone’s wish list — the debut of the 4S was one of the most successful launches of any of its predecessors, selling more than one million units in one day.

The iPhone experience is proof that while uncertain conditions are curtailing sales for many manufacturers in many product sectors, there still remains a huge section of the consumer market that has the means and desire to continue buying. All they need is the confidence to buy — knowing that it is the best product they can get for their dollars.

In this environment, diamond consumers have to be reassured. They know there is always a possibility that prices might come down, not just in diamonds but in other product areas as well, but they are very afraid — and would be very disappointed — if the prices came down right after they bought the stones.

November a Critical Month

If things don’t improve rather quickly or if there is any further volatility and chaos in the world markets, this Christmas season for diamonds and jewelry may very well be a washout. November is still ahead of us and it is an important month because diamond demand often begins to taper off in early December, except for some demand for large stones. The industry will then have to wait until early 2012 for the market to become active again.

It was as recently as 2008 — how long ago that seems! — when the industry had an almost identical situation as exists today. But back then, everyone watched helplessly as diamond trade collapsed. Having lived through that, we should be asking ourselves whether we learned anything from the experience or whether we are going to go ahead and repeat the same mistakes all over again.

At present, the diamond market has corrected itself and the excessive speculation that had been going on has been stopped and reversed. Where the industry goes from here is in the hands of those in the trade. There is still a pent-up demand for diamonds, but the trade has to take steps to shore up the market’s belief in diamonds, a belief that they will maintain their value relatively better than other investments.

 

The Marketplace

  • Top-quality large stones, especially over 10 carats, are still being sought. Buyers try to offer lower prices but, ultimately, will buy if nothing less expensive is available.

  • The general bread-and-butter goods continue to sell, although at slightly lower prices, because the availability of these goods is still an issue. VS-SI from G to K is still the main category being sought.

  • The main interest is in diamonds from 50-pointers to below 2 carats. There is fringe interest in 30-pointers and 3-carat sizes.

  • Buyers are more inclined to pay a little more for what they need rather than buy in bulk at better prices. Companies with a distribution network able to use a wide range of qualities, however, can capitalize by buying in today’s weak market.

Article from the Rapaport Magazine - November 2011. To subscribe click here.

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