RAPAPORT... The Hong Kong jewelry shows are often about Chinese buyers and Indian suppliers. It’s little wonder then that both the March and September fairs have grown in importance over the past few years. After all, how the Chinese buy and the Indians supply has resonated throughout the rest of the market in the past few years.
This year’s September Hong Kong Jewellery and Gems Fair, which began on Wednesday, is no exception. In fact, the show has taken on added significance given the volatile environment that has engulfed the trade in 2013 and with both groups in a state of flux.
Of course there are other traders that attend the show and make their mark in the diamond section. Israel and Belgium each have sufficiently large pavilions, not to mention the local Hong Kong contingent. Buyers come from all over, including the U.S., elsewhere in the Far East, as well as Belgium, India and Israel to look for goods.
But undeniably, among the pertinent questions being asked about the show are whether Indian suppliers will lower prices in order to generate liquidity, and whether Chinese buyers have gained confidence to build up inventory.
It all makes for an interesting dynamic. Not only is the show anticipated to provide a snapshot of current Far East demand, it is likely to offer a fair indication of the state of global polished dealer demand and trading at an important juncture in the diamond industry calendar.
In short, the show is expected to shed some light on the extent to which the Chinese are buying, how the Indians are selling, and about which goods the West is inquiring, ahead of the all-important fourth quarter — and of course, how prices are trending. In that sense, the market context preceding the show was not encouraging as sentiment has been weak in the third quarter, with tight liquidity and slow trading. In fact, buying at the show is expected to be selective and price sensitive, as it proved to be in the first two days of the fair, with initial reports indicating steady traffic but cautious demand.
Throughout 2013, round, 0.30 to 0.40 carat, G-H, VS-SI diamonds have been the hot item, driven by steady Chinese and U.S. demand for these goods. Indeed, the shift in Chinese demand toward lower quality, SI clarity diamonds has been among the most significant developments in the market in 2013. The increase in buying on memo in China is another trend worth noting.
Of course these are symptoms of the cautious economic climate that has enveloped China this year. The once-in-a-decade political change that took effect in January tasked its new leadership with rebalancing the economy away from its emphasis on investment and exports toward developing a more consumer-driven economy. But even as China’s general retail sales in August were better than expected, consumer sentiment is down from a year ago as economic growth has slowed.
The large jewelry retailers operating in the region have acknowledged the slowdown. Their inventories are relatively low as they have been reluctant to buy large quantities of goods in a downward moving market. The polished price declines experienced in June and July influenced, or resulted from, weak Far East demand together with the pressured Indian trade.
The question on everyone’s mind is whether it has extended into September. In theory, there should be an uptick in activity with Far East buying in preparation for the October 1 Golden Week, which is the second busiest retail holiday in China after the Chinese New Year.
Polished suppliers, meanwhile, are hopeful that the busy global retail season in the coming months will be enough to support firmer polished prices. They note that the October Golden Week, followed by India’s November Diwali festival, Christmas, the Chinese New Year and Valentine’s Day, should combine to bring sufficient consumer demand to prop up the rest of the pipeline for the remainder of the year. De Beers argued the point when it maintained its high rough prices at the sight in late August.
However, stronger dealer demand needs to emerge in the coming weeks to generate some momentum for the season. And the September Hong Kong show is often, though not always, the catalyst.
Therefore, the diamond market continues to wait and see how price trends evolve in the coming week. Buyers will naturally push for higher discounts as that is what they do. Therefore, much will depend on suppliers. As this column has suggested in the past, the market is often as resilient as its weakest strong player. The extent to which the large manufacturers and polished suppliers hold their prices firm in Hong Kong will likely set the tone for the market.
As of press time, it is too early to tell. Often at trade shows, it is the final days that define its trading success.
Certainly, sentiment in the run up to the show was cautious. Many feel that the lack of liquidity in India has taken its toll, especially after the most recent De Beers sight. The volatile rupee has become difficult to hedge, hitting record lows above 69 to the dollar at the end of August and rebounding to trade at around 63 again this week. Indian banks have also tightened their credit to manufacturers for buying rough. The plight of the Indian diamond manufacturers in the past few months has been well documented (see editorial, ‘Rupee Diamond Manufacturers,’ published on August 30, 2013).
But while domestic demand has been clearly affected, with weak trading in Mumbai, India’s manufacturing and polished suppliers have yet to be tested in the intense international arena that Hong Kong provides. And neither have Chinese buyers had the urgency to buy goods. As a result, polished trading has been in limbo for much of the third quarter, uncertain of which way to trend. The market is therefore looking to Hong Kong for guidance, taking note of how Chinese buyers are doing business with Indian suppliers. The next few days may be telling indeed.
The writer can be contacted at avi@diamonds.net.
Follow Avi on Twitter: @AviKrawitz
This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.diamonds.net/weeklyreport/ or contact your local Rapaport office.
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