The first two months of 2012 were slower than usual because
the Chinese New Year holiday shuttered some businesses and reduced trading
time. Although retailers did well with gift-giving shoppers, the wholesale
diamond business came to a standstill during the two-week holiday period.
Another factor dampening sales was that the Hong Kong International Jewellery
Show, held in early March in previous years, was shifted to mid-February this
year. As a result, buyers held off on shopping and opted to wait until the show
to replenish their inventory.
There was some market concern about whether the new 2
percent Indian import duty on diamonds, imposed in mid-January, would have a
negative effect on sales during the show. But early indications were that the
number of visitors from India would actually be greater than for the September
2011 show because at that time, most diamond companies were overstocked.
ADDED DUTY
Hong Kong sellers were expecting Indian buyers to cite the
added duties in trying to negotiate lower prices at the show, but the fact is
that there is still a general shortage of goods in the market that are in
demand. Eventually, a compromise on prices must be reached if buyers need the
goods.
Over time, the new diamond duties will be absorbed by the
Indian market because taxes once imposed are rarely reversed, especially now
that all governments are scrambling to shore up their reserves in light of the
economic chaos in Europe. At first, though, it is expected that the new duties
will result in diamonds being shipped into India by alternative “unofficial”
channels.
Hong Kong has always been a distribution hub for sending
goods to most of the countries in the region and there are well-established
Hong Kong companies with extensive expertise and connections to all markets.
The Hong Kong show was expected to be a good indicator as to whether Indians
will be sending their purchases through official channels or choosing
alternative means.
Indian traders are legendary for their acumen in dealing
with difficult or restrictive conditions. The more the government tries to
clamp down on them, the more ways are conceived to circumvent the regulations.
It would not surprise anyone if the Indian authorities actually collect less
after imposing the new tariffs.
POCKETS OF DEMAND
Chinese buyers returning from the long holiday will make
their presence felt in Hong Kong. Retail sales in China in the first two months
of the year actually were better than expected and there was an acceleration of
demand. This good news came despite all the grim warnings that China might be
heading for a hard financial landing because of a drop in its property markets
and a decline in exports to its all-important markets in the U.S. and Europe.
Demand in China is still strongest in H to K colors in SI,
but buyers are very selective as to the type of SI they will accept, resulting
in an accumulation of black piqué SI goods in suppliers’ inventories. The
recent price drop in VVS and VS goods in higher colors for 30-pointers and
40-pointers has heightened interest in these goods by some Hong Kong buyers,
especially since the scarcity of SI goods has strengthened their prices
recently. If the price gap between VVS, VS and SI would become narrower, it
would increase sales of products in all price ranges.
If the strong demand continues only for SI, it will only be
a matter of time before buyers will have to accept the black inclusions as
well. Once that happens, it will open the door to the sale of piqué stones,
which will significantly increase the overall volume of diamond sales in the
region.
STILL WORKING ON COSTS
Recently, rough diamond producers have been trying to move
their production down the line directly to diamond cutters, which may lower the
costs of diamond manufacturers, enabling them to meet their customers’ prices.
There are some diamond producers holding tenders in February for both rough and
polished in Hong Kong, with the goal of winning new clients. Since they mine
the diamonds themselves, they have more flexibility in how much to sell them
for, as well as better information on prices generally.
The recent political and economic skittishness in the world
has sidelined many diamond dealers, but this also has presented the opportunity
for other companies to carve out a bigger slice of the market.
THE MARKETPLACE
- 10-carat DIF and flawless stones are still being sought
but, apart from this grade, the trend has moved to lower colors and clarities.
- Demand for carat sizes remains stable but, in line with
market demand, has moved toward lower colors.
- .50-carat stones in rounds are in strong demand, and
prices are strong.
Article from the Rapaport Magazine - March 2012. To subscribe click here.