Hong Kong’s diamond market continues to be sluggish, dashing
hopes for a recovery for the Christmas season.
Retailers generally feel that they have adequate inventory to carry them
through the holiday season, and are not
buying anything in anticipation of a busy period.
Many of the larger retail
chain representatives traveled to the cutting centers in November and
reportedly did well. They were able to fill all their inventory needs and they
got good prices on quantity buys from suppliers who were anticipating that
business would continue to be slow for the next few months. On their return to
Hong Kong, the chains put all purchases from the local market on hold until
they see a pickup in customer demand. Some said that they will probably resume
buying early in 2012 but, of course, that depends on year-end sales.
Economic Concerns
The worries regarding the European economy are causing
consumers generally to cut back on spending for
diamonds. But they are not concerned about diamonds becoming cheaper so
they will continue to buy if they need a diamond for a special occasion.
Electronics are expected to capture a good portion of the
money spent on Christmas gifts this year. Many electronic products are being
offered at large discounts to attract customers. The theme in 2011 for all gift buying appears to be to
offer more for less, with larger discounts on larger purchases.
Negotiating Prices
The same applies to wholesalers and diamond suppliers — they
must price their goods attractively in order to stimulate sales. If they wait
for the buyers to make them an offer, usually these offers are so far out that
sales are never concluded. Buyers are simply not all that hungry for goods. If
they can get a bargain, they will close the deal but then they will offer even
less on the next stone. It is akin to short selling in diamonds: Sell the
diamond, whether or not you make a profit, and try to buy the next one cheaper.
While demand for diamonds
in the Asia-Pacific region and in China has weakened in recent weeks, it
is still stronger than Western markets and the industry expects quite a
reduction in the overall volume of diamonds in the pipeline by early 2012. Basically, the weak demand is not seen as a weakness in consumers’ interest in and desire for
diamonds as much as it is a reflection of the anxiety about what will happen if
Western economies deteriorate further.
Last-minute Rescues
Up to now, debt-burdened countries that were on the brink of
economic collapse have been magically rescued at the eleventh hour, and the
problems — and media attention — quickly shifted to another country. In a way,
the situation has been similar to the so-called Jasmine Revolution — named
after Tunisia’s national flower — that spread from one Arab Nation to the next.
But in that case, major issues were addressed and resolved and new governments
swiftly took over. That is not what is happening with the economic situation
because the underlying problems that have led to the crises in various
countries have been treated with a monetary
band-aid, without implementing the systemic changes that are necessary
to prevent a recurrence.
The resulting uncertainty in the markets has definitely
undermined diamond demand at the dealer and trader levels. De Beers reduced the
size of its recent sight and is reported to have given a slight tweak to prices
in order to bolster diamond sales. But even this has not really helped to spur
demand. It is encouraging that the Rapaport list has not moved in recent weeks
and this, hopefully, will dispel the trade’s fear that a last-minute drop in
the list will negatively affect diamond sales for the end of the year.
It is a bit late for any real upsurge in the market for
diamonds in smaller sizes as all the jewelry using these sizes should already
have been set and should be in retailers’ showcases by now. Seasonally, this is
the time of the year for larger diamonds. There have been some calls for these
reported and if the stones are available to meet the demand, then dealers can
succeed in closing a sale.
The Marketplace
• Demand is still strongest in the VS-SI range in virtually
all sizes and colors.
• More demand has been reported in recent weeks for lower
colors. Retailers appear confident that price points will continue to
experience downward pressure and one of the ways to make sales at lower prices
is to drop the colors.
• High-ticket items are showing signs of weakness.
• Retailers are accepting goods with a G grading in preference
to better grades, but only if the discounts are larger.
• Buyers are pushing for lower prices to create a buffer in
case prices do slide.
Article from the Rapaport Magazine - December 2011. To subscribe click here.