High Prices, Shortage of Best Goods
By Gaston D’Aquino
While there is a very evident shortage of desirable merchandise, which has helped support the high diamond price levels in recent weeks, end consumers are still struggling to come to terms with the increases. The Rapaport Price List for fancy cuts went up on April 1. Although the move stimulated demand for fancy cuts, the calls were for very specific cuts and qualities. Large fancy cuts in higher colors in medium clarities, such as VS and SI, are moving well if the shape of the fancies is good.The Right MakeOne problem with fancy cuts is that unless the specific stones are good, buyers will normally reject them. Stones that are either too heavy, too flat or deviate too much from the ideal are difficult to sell. Buyers prefer to take lower clarities or fluorescence instead.At the other end of the spectrum, DIF in top makes in virtually all sizes in rounds are still finding buyers. The demand stems from Mainland China, where there has been growing interest in buying only the best among the nouveau riche, be it in cars, rare and expensive wines, designer labels, art or diamonds. If a seller has any stones of 5 or 10 carats in DIF, these will always find a buyer. Premiums in these categories are now common from 3 carats and up and, in 2 carats, the prices are close to list. However, premiums do exist in off sizes.Tough SellDiamond dealers find it difficult to sell under these conditions, as retailers pull back on their purchases and try to work on memo. But at these high levels, many deals fall through. Consumers have become used to buying at discounts from the Rapaport list so, when asked for list-and-higher prices or discounts in single digits, they tend to shy away from the purchase — or put it off for another day.Many retailers are now concentrating on buying those diamonds with larger discounts and are more tolerant of lower makes, colors or fluorescence. It is interesting how the market has changed so dramatically — it was not that long ago that any fluorescence was the kiss of death on any diamond.Indian and Chinese cut goods in small sizes are also going through the roof, with prices for the better qualities in these sizes going for way over $800 per carat. Most of the demand in diamonds for jewelry has been for a much smaller diamond content, while maintaining a big jewelry look.
The watch industry is also a big consumer of these sizes. China is one of the leading markets for high-quality watches from Switzerland, many of these being diamond-encrusted models.The earthquake and tsunami that hit Japan have had only a small impact on the diamond demand in this part of the world, but there are concerns that the slow recovery in Japan will affect the sourcing of many electronic and mechanical components that are used by the factories located in Mainland China.Accepting Higher Labor Costs Labor costs also are escalating in China but the world has become so dependent on goods made in China that it is forced to absorb the higher costs. Business dealings between China and the U.S. have been thorny, with the U.S. calling for China to revalue its currency, and China worried about the huge reserves it holds in U.S. dollars. Those dollar-based reserves are losing value against a basket of other currencies, so China is using them to underwrite business with developing countries or other old-world countries that are experiencing economic difficulties. In the latest news, China now owns nearly half the debt of countries like Spain, and has pledged to increase business in Latin American countries like Brazil.It appears that the inflationary forces in all commodities are running parallel to the hike in diamond prices, and it seems that, at least for the near future, both will continue to move up in tandem. So while Hong Kong basks in the shade of China and China’s present policy of spending its way out of the problems affecting the rest of the world, demand for diamonds is expected to remain steady, with some ups and downs, at least until the usual seasonal slowdown in summer.Retailers are looking forward to the Golden Week holidays beginning May 1 in order to unload some of the inventory they bought during the frenzy in February and March. They have seen their purchases increase in value as the Rapaport list has gone up several times during this period, so they feel more confident.The Marketplace- VS-SI in all sizes and colors are in great demand. These qualities are usually the first things sold out of a production. VVS is still sticking, however, due to the shortage of VS-SI, and VVS2 is making slow headway.
- Large fancy colors are also moving well, especially in cushion cuts, with very fine cuts in vivid or intense yellows preferred.
- 1-caraters to 2-caraters are in good demand. However, 90-pointers are slow, 70-pointers slower, 80-pointers are moving well and 50-pointers are in good demand.
- Small sizes below sieve 3 are in very hot demand and almost impossible to find, unless purchased along with other less desirable sizes.
Article from the Rapaport Magazine - May 2011. To subscribe click here.
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