RAPAPORT... There is a saying, “sell in May, and go away in June” that is usually associated with the stock market. It seems that this year, the advice may well apply to diamonds. May is traditionally the last month of strong demand prior to the usual slow markets that dominate the summer months until a revival in September. But this May was slower than normal due to the prevailing uncertainties worldwide, and the fact that the periods of increased demand that might have occurred during Golden Week and Mother’s Day did not really materialize.
QuarantineThe first day of Golden Week, May 1, when Hong Kong is usually flooded with visitors from Mainland China, coincided with the first confirmed case of swine flu in Hong Kong.
Although there was no panic, people were worried that it might spread very quickly and become a full-blown epidemic as happened in 2003 with the SARS (Severe Acute Respiratory Syndrome) pandemic.
In this year’s outbreak, the Hong Kong government took very decisive action immediately by placing all persons who had any contact with the index patient into quarantine. The quick reaction in placing an entire hotel and staff on a one-week quarantine was undoubtedly due to the painful lessons learned by Hong Kong in its experience with SARS. To everyone’s relief, this year’s flu has proven not to be as virulent as initially feared.
Diamond Demand Fairly StrongDespite all the negative media coverage during the flu outbreak, business went on as usual and the demand for diamonds did not really fall but, in fact, continued to be fairly strong. The fact that many diamond manufacturers have curtailed their production since the crisis began definitely has resulted in fewer goods in the market, and buyers have to source their needs from a wider range of suppliers.
This also has encouraged more interdealer trading to service clients. For some diamond dealers and manufacturers, it was a conscious decision to slow down their production, but for many, it was a situation imposed on them because they were overextended with their banks and their credit facilities had gone dry. Mainland China and some of Hong Kong’s neighboring markets are still looking for particular types of goods, but these are becoming increasingly difficult to source as the demand outstrips supplies.
Although, generally, large sizes continue to be weak, there is still demand for big stones in high qualities. One reason may be that consumers feel that with the recent drop in prices, diamonds provide a good investment prospect during these volatile times. Buyers continue to try in vain to keep prices low but in the end are more amenable to pay more if they cannot find what they need.
Business FailuresA few diamond companies failed in Hong Kong during the past month. Unfortunately, before they went insolvent, they sold off goods into the market at distressed prices. The situation is also dire with some jewelry manufacturers in Hong Kong, especially those who were more active in the U.S. market. At present, they are still paying, but with very long delays on top of the already-long credit terms they had been given by their diamond suppliers, especially Indian companies. It is expected that the slow-payment trend will continue for some time to come, as there is no indication that the U.S. market will improve any time soon.
Demand is expected to remain flat during the JCK show in Las Vegas. By contrast, business in Asia is expected to recover much faster. Perhaps as early as the end of 2009, there could be an improvement in sight and even a return to normalcy. China will probably lead the region out of the present crisis and Hong Kong, with its close ties to all the surrounding markets, will no doubt benefit directly.
Marketplace• DIF in 1 carat and larger appears to have gained favor with consumers in recent months. Many see diamonds as a good investment now that prices have come down from the heights attained in 2008.
• 2- to 3-caraters in fancy cuts are also in demand. Pear shapes, especially in matched pairs, are in strong demand. The preference is for D-F colors in VVS/VS clarity.
• Demand is stable for carat-size stones in high colors with VS/SI clarities and extremely strong for G-K colors in VVS.
• Dossiers from 50-pointers in G-K in VVS are also in strong demand.
• Small diamonds for settings continue to be slow, both in rounds and fancy cuts.
• Demand is increasing for fancy colors in high clarity of IF-VVS1 in large stones.
Article from the Rapaport Magazine - June 2009. To subscribe click here.