Consumers Becoming More Demanding

RAPAPORT... September is the month when the diamond and jewelry trade usually awakens from the long summer sojourn. Although there is marked improvement in demand, it is still very reserved this year. Jitters from the threatened slowdown due to the subprime mortgage problems in the U.S. still bear heavily on the spending mood of consumers in general.

Better and Better

In the meantime, the equity markets in the region have shrugged off all the negative news and continue to reach new heights. Some of the locked profits have gone into diamonds, but mostly for larger and better-quality stones. Prices for large stones have been going up with clockwork regularity and the demand continues to be strong, but consumers have become much more demanding. Even a triple EX grade is not good enough for some; they also demand that the diamond has hearts and arrows and is laser inscribed.

The demand for more mundane grades is sluggish as retailers are overstocked and not in a rush to buy more inventory.

Perhaps they have learned from past experience that in September, many of their customers visit the Hong Kong Jewellery & Watch Fair to buy their large diamonds. Retail business usually slows down dramatically during this period. There is also a pattern that has developed over the past few years, in which diamond manufacturers come to Hong Kong in the week preceding the September show and try to sell to local dealers and retailers before the show. This year, probably because of the tight credit situation in the U.S. market, manufacturers seem even more eager to push sales in Hong Kong.

The only thing Hong Kong dealers can look forward to is the Golden Week that starts October 1, when hoards of Mainland tourists come to Hong Kong on a shopping spree.

Credit Changes

Hong Kong owes its position as a major diamond jewelry-manufacturing center to Indian diamond suppliers. Indian suppliers have carved a niche for themselves in the Hong Kong market by offering longer and more flexible credit terms, enabling the local jewelry manufacturers, in turn, to offer longer terms to attract their clients, especially in the U.S.

Even though there are some liquidity problems in the U.S., this is not the case with all clients there. Hong Kong manufacturers, who have been active in the U.S. market for a long time, have established relationships with some of the best and most established companies, who are still doing well despite the problems smaller, younger companies may be facing.

Over the years, Indian diamond manufacturers moved into larger sizes. They are now a major producer of pointers and, more recently, of diamonds larger than 1 carat. Many of these larger diamonds, cut from makeables, are being certified. Some even have Gemological Institute of America (GIA) certificates, and to some buyers, who are more concerned with how large a discount they can get, these are perfectly acceptable.

Unfortunately, the gem labs do not differentiate for the origin of the rough nor the type of rough. Providing a diamond is cut to good proportions and the finish is good, it will get a grading that is identical to another diamond produced from more expensive rough.

Triple EX Cut in India

Many triple EX stones that are being sold in Hong Kong are of Indian origin and are finding a ready market in Mainland China, which is still an emerging market and not as discerning or knowledgeable about diamonds. Small fancy cut diamond production has been totally taken over by India, and nearly all Hong Kong jewelry manufacturers use these exclusively, both for the price and, of course, because of the long credit terms.

Indian cut diamonds have come a long way, with more technology and better cutting equipment. Those factors are making it ever more difficult for a cut to be branded as an “Indian cut,” a term that used to denote diamonds produced cheaply using more primitive methods. Not anymore.


The Marketplace

• Demand for large stones dominates. Stones of 5 carats and larger in all colors and clarities are very hot.
• Recent increases in the K-M prices in the Rapaport List might create some shifts in demand from the Indian buyers during the September show. But, overall, show exhibitors are expecting good results.
• Demand for 1-carat sizes remains stable but 2 carats are still weak.
• Setting sizes in Indian goods are beginning to be more in demand and should see an improvement, especially after the September show as jewelry manufacturers get new orders.
• Dossiers are moving well. 30 pointers, which were weak, are finding a new lease on life. 50 points and larger are still in good demand.

Article from the Rapaport Magazine - October 2007. To subscribe click here.