RAPAPORT... This year’s Hong Kong Jewellery & Watch Fair expanded to two venues to accommodate the huge demand for exhibition space. In addition to the completely filled main convention center venue at Wanchai on Hong Kong Island, part of the show was moved to AsiaWorld-Expo, next to the Hong Kong International Airport on Lantau Island. The airport location was not a first choice for the exhibitors, and even opening it one day earlier than the Wanchai location did not help matters much. Although the traffic was brisk, it was more a case of the buyers just looking and then doing their actual buying at Wanchai. After the first day, traffic was extremely slow at the Lantau site, with buyers preferring not to spend the extra time traveling to the airport venue, even though free shuttle-bus service was provided.
Scheduling the fair so close to the Jewish New Year definitely impacted the number of buyers. Many did not come as they would have only three days there before having to rush home for the start of the holiday.
While there was a marked increase of jewelry buyers from Russia and Eastern European countries, there were visibly fewer loose diamond buyers from Mainland China than in past years. The majority of diamond buyers at the show were from India, Thailand, Indonesia and the Middle East. The Thai buyers were put off, however, by the overnight military coup in Bangkok that deposed the Prime Minister. Although there was no violence, it is expected that it will take at least three months for Thai businesses to get back to normal, and business will be affected during this period.
Credit Issues Dampen SalesEven the exhibitors in the main venue had low expectations for the show, as the market in Hong Kong and the surrounding area has been extremely quiet for the past few months. Sales activity was brisk, but still lower in value as compared to the previous year.
While there was a significant increase in the number of large stones offered, there was a struggle over prices, with buyers trying to push down the numbers. In the ensuing days, deals were made so that, overall, both buyers and sellers were satisfied with the results.
Results were mixed in the jewelry section, but, overall, it was disappointing.
All in all, the show exceeded expectations, but it also showed signs that prices have peaked and business will be severely curtailed, not because of lack of demand but lack of liquidity. Many sales in the show were scuttled because the buyers already had long-overdue debts, and sellers would not give them further credit. Buyers could not close deals with new suppliers because they did not have the seed money to establish new credit lines.
Secret Tender of Reds and PinksDuring the same week as the show, Rio Tinto Diamonds Argyle Pink Tender was also in town — one of the stops on its six city international tour. Only about a dozen of Hong Kong’s top dealers — who were sworn to secrecy — were invited to the meeting, held at the Peninsula Hotel, where they competed for the stones in closed bidding. (see page 11 for more details.)
Although Rio Tinto won’t disclose prices, some of these rare diamonds are thought to be valued at more than $400,000 per carat and ranged in size from just over 50 pointers to more than 2 carats. According to reports from those who attended the tender, there were only ten stones that were exceptional in quality; however, there were more stones larger than 1 carat than usual.
China VAT Explained
The Shanghai Diamond Exchange (SDE) held a seminar during the Hong Kong Jewellery & Watch show to explain to the trade the implications of the announced reduction of the value-added tax (VAT) for diamonds imported into China, down from 17 to 4 percent.
Only diamonds imported through the SDE would enjoy the reduced rates. Apparently, the VAT rate is not actually reduced, but there is a rebate of 13 percent for imports through the SDE. Importers must first pay the 17 percent and then they will immediately receive the rebate.
The rebate is dependent on whether the party importing the diamonds passes on the benefit to the next level. Most probably this will happen, due to competition between importers, but it will depend on market forces.
There are machines that print out invoices to account for the collection of VAT, but only the machine that is located in the SDE is configured to allow the 13-percent rebate. All the machines in other ports of entry throughout China must collect the prescribed 17 percent and there are no plans to change this in the foreseeable future.
Although the ruling on VAT was approved and scheduled to be implemented on July 1, the invoices provided by the SDE to reflect the rebate were not available until October 1, 2006.
The Marketplace• Large sizes are selling well. Goods for the Indian market are very hot, with mostly H-M colors in VVS clarity in sizes from 1 carat to more than 10-caraters.
• Carat sizes in H-K colors in VVS clarity are in very good demand, in both good and off-makes.
• Fancy cuts are in good demand. Emerald cuts and pear shapes in lower colors are avidly sought.
• Pointers are weak in demand and prices are also weakening.
Article from the Rapaport Magazine - October 2006. To subscribe click here.