Business slowed considerably in February because of the Chinese New Year holiday for the Year of the Rabbit. Although the public holidays, which started February 2, on the New Year’s Eve, run for only four days, traditionally, trading comes to a standstill for at least two weeks until the end of the celebrations on the 15th day of the Lunar New Year, which this year was February 17.
During the two weeks before the New Year, trading was tapering down, with demand concentrated mostly on larger stones. Even with the new, higher prices, demand for these categories was strong. Jewelry retailers reported good business over the holiday — traditionally a big shopping occasion — and Hong Kong was overrun by tourists, not only from the Mainland, but also from the neighboring Southeast Asian countries.
Demand Remains Strong
The return to business normalcy following the holiday leads directly into the Hong Kong International Jewellery Show, which takes place March 4 to 8. So far, the signs are that it will be a strong show because demand is greater than supplies. There is a big shortage of polished and prices are strengthening despite the increase in the prices of the Rapaport list in January. Buyers complain and initially resist the new prices but, in the end, finding that they cannot buy polished at their prices, they have no alternative but to raise their offers.
In the past, India was a source of diamonds that were relatively cheaper than other cutting centers. This prompted buyers from these centers to travel to India to buy goods that they then mixed with their own production to bring the overall cost down and allow them to move merchandise at more attractive prices.
However, prices that are being quoted in the Indian market presently are extremely high, even higher than what is asked at cutting centers. This is attributed to the strong internal demand in India, not only from consumers, but from traders as well.
There seems to be a tendency for Indian diamond manufacturers to either put their rough away in the safe or else sell it, at the prevailing, highly inflated prices, and then buy from other local manufacturers sufficient polished to fill their orders from their customers. This practice is further evidence of the production shortages that exist in the Indian market. Bidding for whatever is available has raised prices to what some in the industry consider unreasonably high levels.
Hong Kong has seen an increase in Indian diamond dealers arriving in the past few months to mop up available goods. But it has become increasingly difficult for them to buy because local dealers are aware of the prices in the Indian market, and because Hong Kong dealers are having to pay more for their polished.
Indians play a big part in all the jewelry shows in Hong Kong, so this year’s show should see an increase in business if demand remains strong in the Indian market.
Impact From Middle East
One thing that could affect the bull run in diamonds in the near future is the explosive situation in the Middle East. The world witnessed how people-power in Egypt deposed the country’s long-standing president of 30 years, and the same scenario is starting to play out in other Arab countries. Any uprisings will undoubtedly cast a pall over a world that is just recovering from an economic upheaval. In addition, the fact that the multiple hot spots are in the Middle East could affect the price of oil, and could have a direct impact on inflation, which in turn could cause a loss of confidence in currencies and equities.
How will diamonds fare in this scenario? If gold takes the lead and goes up in price, breaking records along the way, then diamonds will not be far behind as people try to park their money in something more solid than cash or stock. In the past two years, despite the roller coaster in diamond prices, it has become clear that people are not averse to choosing diamonds as something they can trust.
According to the Chinese lunar calendar, the Year of the Rabbit is going to have its fair share of volatility. That seems apparent right off the bat as the year has barely started and the volatility already looks like it might continue for the next few months at least.
The Marketplace
• Large stones of over 3 carats still dominate demand. Hefty premiums still exist in larger sizes.
• Demand for 1-caraters and 2-caraters should pick up after the New Year holiday. Prices are higher, but demand outstrips supplies.
• Demand for 30-pointers and 50-pointers is good. Other sizes below 1 carat have mediocre demand.
• VS-SI continues to be in high demand all across the board, but short supplies in these grades have caused VVS2 to start moving as well. Apart from DIF, E-G in IF is weak. VVS1 is also weak in better colors.
• Stones with larger discounts because of their G — good — grading or because of fluorescence are finding a niche market.
• Small Indian diamonds below sieve 3 are in very strong demand, while other sizes are neglected.
Article from the Rapaport Magazine - March 2011. To subscribe click here.