Diamond demand, along with prices, was climbing briskly when the debt crisis in Greece threw the world’s financial markets into a spin. The sense of devastating doom and gloom was soon dispelled as the European Union (EU) and International Monetary Fund (IMF) offered Greece a bailout of $146 billion. Other countries, especially Portugal and Spain, quickly announced that their economies were also facing difficulties and might have to be thrown a lifeline.
The Greece bailout will place a heavy burden on the other members of the EU and the once-almighty euro took a plunge against the U.S. dollar in fear that the Greece contagion might affect the whole of Europe. Investors scurried to what they considered safer havens, including gold, as well as the dollar.
In response, the once-beleaguered U.S. dollar rose to new highs against the euro and all other European currencies. With these new developments, there is a certain amount of apprehension that the economic recovery that has happened so far is running out of steam, and that the cracks in the recovery are starting to show again.
Diamonds Ahead
Against this dark global backdrop, the Rapaport list made a bold appearance on May 7, with almost the whole page of stones 90-pointers and larger indicating higher prices. The same was the case with fancies 2 carats and larger. Diamantaires had been anticipating an increase in the price list for more than a month and it is still unclear whether that expectation fueled the recent demand, or whether the welcome demand reflected general forces in the market.
Still, the list increases, coming at the same time as financial markets were reacting to the Greece bailout, threw the world bourses into chaos. Markets in Hong Kong and China dropped to eight-month lows. Had the hikes come a few weeks sooner, they might have helped to reinforce the prevailing higher prices. In the midst of other economic uncertainties, the new list caused buyers to pull back and demand to freeze.
Also impacting the diamond scenario is the fact that from the middle of May through the summer months, demand is seasonally low. So while the Rapaport list prices have increased, reflecting the higher prices being paid in the market the past few months, that does not necessarily mean that the discounts will remain the same.
Ultimately, the prices of diamonds are determined by what the market and consumers are ready to pay and not by the discounts. Following the rescue of Greece, the resistance from local diamond buyers to higher prices has been firm. Dealers and retailers prefer to wait until demand picks up again in September before buying, rather than buying for inventory now in expectation of higher prices in the fall.
Supply IssuesThis stall in the supply line has benefitted some local suppliers who have inventory in Hong Kong, because they are able to tap that stock to meet the retailers’ immediate needs for goods on memo or to fill a specific requirement. Large stones, especially in D to E colors in VS and SI, are still extremely popular and have been selling rather well. The same goes for the better clarities in G to H colors. The normal bread-and-butter goods continue to move at a regular pace because of the general scarcity of these goods, but that is leaving other marginal goods just lying in the safes.
Some dealers concentrate on stocking up on stones with bigger discounts, which they feel will be tempting to buyers, but there are others who still focus only on dealing with the very high end. DIF from 1 carat and up will always find a buyer but dealers in these stones must have the patience to wait for the demand to come to them. In addition, as these are expensive stones, buyers will tend to be more demanding, even staying away from stones less than triple EX and insisting on no fluorescence.
The Jewellery & Gems Fair, to be held June 24 through 27, has grown into a respectable-size show during its 23-year run in Hong Kong. It is expected that once again Indian clients will be the main visitors to the diamond pavilion, with a fair amount of buyers from Mainland China and some of the surrounding markets. Unfortunately, with the prevailing political unrest in Thailand, there may be a drop in visitors from that country.
Moving MoneyThe Chinese market will continue to be strong after the summer. The fact is that despite the measures taken by the central government to cool down both the stock and property markets, investors have chosen to ignore the government’s interventions and continue to drive the markets higher.
Getting money out of China, especially for the diamond trade, has always been a problem as the amounts of money involved are big. Officially, travelers must declare any amount in excess of $5,000 they take out of the country. Lately, border controls have become much more stringent so Chinese diamond dealers are afraid of transporting larger amounts across the border. As a result, the costs for alternative methods of transferring funds have gone up.
The Marketplace• Apart from a definite drop in overall demand, the type of merchandise that sells remains more or less the same: high colors in medium to low clarities and medium colors in high clarities in sizes from 0.30 and larger. Stones over 3 carats still find buyers, although there will be tough bargaining in order to conclude deals.
• Demand for K-M colors remains quite strong. Some sectors of the China market have started to use these colors and because of their low price points they have become increasingly popular.
Article from the Rapaport Magazine - June 2010. To subscribe click here.