As dark clouds gathered over Hong Kong at the start of the annual
rainy season, wholesalers reported a continuing dampening of demand. Buyers,
they say, are still concerned about the uncertain global economic outlook and
remain focused on price.
“The market is slow, I can tell you. We were about 40
percent down in April from March, and also compared to a year ago,” said Alon
Garty, the Hong Kong–based general manager of Windiam Asia, a Belgian diamond
wholesale company with headquarters in Antwerp. “People are not buying much for
stock, only on demand.”
“A customer who bought ten stones is now buying eight
stones,” said Ashit Shah of Diaglobe Hong Kong, a diamond wholesaler that holds
one of the largest inventories of stones in the city, according to Shah.
Diaglobe deals in certified .30-carat to 10-carat stones, as well as polished diamonds.
Shah said business is down about 25 percent compared to 2011. He said rounds in
general are down 30 percent from 2011.
Wholesale and retail company Bee’s Diamonds, which deals in
1-carat-and-above round brilliants, reported that sales are down 5 percent to
10 percent from 2011, although owner Bee Ng said that other wholesalers are
seeing bigger drops of 20 percent to 25 percent compared to 2011. He described
the current market as “confused.”
“This year, wholesale buyers are more conservative,” Ng
continued. “They are sitting on the edge to see what 2012 will bring them.
Demand is still healthy, but not particularly exciting. The diamond industry is
not like it was nine months ago.”
SPECTER OF INFLATION
While Hong Kong’s economy has so far shown resilience to the
uncertainty that has persisted in Europe and the U.S., its giant neighbors,
China and India, have not been so lucky. Inflation pressures continue to loom
in India, according to the International Monetary Fund (IMF), which reported
that policy uncertainty and supply bottlenecks are contributing to slower
growth.
Inflation also remains a worry in China, where consumer
prices in March were up 3.6 percent from a year earlier. According to figures
from the country’s National Development and Reform Commission (NDRC), the
Mainland’s economy grew by 8.1 percent in the first quarter of 2012 —
impressive in global comparison terms, but still China’s slowest growth in
almost three years.
A marked slowdown in China — Hong Kong’s biggest customer
for diamonds and jewelry — would have a direct negative impact on diamond sales
in Hong Kong, according to traders. A “marked slowdown” is widely seen as
unlikely, but traders have noted some weakening in demand. Despite that
softening in China and India, “demand remains strong,” said Ng. “But it’s not
as strong as nine months ago, when wholesalers were ordering every day. Now,
it’s more like every ten days.” According to Garty, “China is still active —
less in volume than before, but still active.”
In Hong Kong, the underlying strength of the economy and the
city’s free port status continue to fuel optimism about the diamond business.
On March 25, Hong Kong’s new chief executive was chosen following a bitterly
fought selection process. In Hong Kong, chief executives are elected by a
1,200-member election committee. C. Y. Leung was the surprise winner in a
campaign that saw the favorite, Hong Kong’s former chief secretary Henry Tang,
lose out to his rival following revelations about Tang’s extramarital affairs
and illegally built structures at his home. Leung will take office on July 1.
Political observers said he is less likely to pander to the city’s tycoons than
his predecessors.
SPOTLIGHT ON PRICE
Price is the most important factor in buying decisions at
present. Traders said that the cost of doing business in Hong Kong makes
discounting difficult or impossible. “Buyers are very cautious on prices
currently,” said Ng. “Even the smallest fluctuations in prices are making wholesale
buyers nervous.” Shah said that “People want to bargain, but it’s not possible.
I can never sell cheap in Hong Kong. Food, rent, people — it all costs money.”
India’s 2 percent import duty on polished diamonds, which
took effect in January, is having a beneficial impact on local business,
according to Shah. Buyers who previously considered buying from India have been
deterred by the additional cost, resulting in more business for Hong Kong–based
traders. “I’m happy. It helps my business,” he said.
The slowdown in other parts of the world is having an impact
on Hong Kong’s wholesalers. Traders from abroad are increasingly making short
sales trips to the city, adding to the competition. Shah notes that there are
now about 500 diamond trading offices in the city compared with around 100 five
years ago.
RETAIL
Demand is stable for engagement rings. In the first quarter,
demand for D to G colors was strong. “We are seeing stable demand for
engagement rings in our private sales department,” said Ng, whose company also
has a retail arm that accounts for about 20 percent of its business.
THE MARKETPLACE
- Wholesale buyers in Hong Kong are looking for VS to SI.
- .50 carats to 2 carats in D-H, VS-SI are still selling
steadily.
- Buyers from China are most interested in VVS, VS, SI and
even I1.
- Engagement rings in D to H color, VVS2 to SI1 are selling
well.
- Colors are selling well, especially pinks.
- Fancy shapes in all colors are selling well.
Article from the Rapaport Magazine - May 2012. To subscribe click here.