The year 2011 began with a bang for the diamond trade and
ended with a whimper. The Christmas season was one of the slowest in years.
Even during the big 2008 drop in market prices, the trade kept on buying right
up to the Christmas holidays because they felt comfortable that prices had come
off their peak.
It was not until the first quarter of 2009 that prices really
bottomed out.It was a very similar situation in 2011 when, in the first
six months, sales and prices hit record highs and buyers were prodded to
acquire goods by the prospect of prices going up week by week. This buying
binge continued until early September, when prices came off the boil, problems
with the world’s largest economies came to the fore and the industry faced the
prospect of another economic upheaval.
Uncertainty Prevails
Consumers, remembering what had happened just two years
earlier when prices fell precipitously, feared that the same thing might
reoccur. This resulted in slower demand for diamonds in both Hong Kong and
Mainland China. Suddenly, both diamond dealers and retailers discovered that
they had overbought and they could not move their inventory fast enough. This
uncertainty prevailed for most of October and November, which are normally the
best months for selling diamonds in advance of Christmas. Many retailers cut
back significantly on their purchases, waiting to see how sales fared during
the holidays.
A combination of overall lack of seasonal demand from retailers
and a reduced supply of goods in the marketplace had one positive effect — it
created a shortage of merchandise, which stabilized prices. Recent reports
indicate that at retail levels, the seasonal Christmas demand in 2011, although
off from 2010, was a vast improvement from the doldrums of October and
November.
Both Hong Kong and China have the benefit of two retail
sales highlights coming very close to each other, with Christmas in late December
and the Chinese New Year in late January. Judging from the record number of
Chinese tourists visiting Hong Kong during the Christmas holidays, jewelers are
confident that they should do quite well on the second holiday, some
anticipating a 20 percent increase in sales compared to 2011. High taxes on diamonds
and jewelry in Mainland China continue to make Hong Kong very attractive to
tourists, who can reap big savings from the tax advantages when purchasing
stones of high value.
Lower Qualities
It was already noticeable in the first days of 2012 that
consumers, at least in Hong Kong, have cut back on their budgets for diamond
purchases and are looking for lower price points. In fact, SI clarities are the
most sought after in virtually all sizes and colors. Even VS2, because of its
large price difference from SI, is beginning to look expensive for today’s
market.
But it’s all about supply. All collectibles today are
fetching record prices, from first-edition Superman comic books to large
diamonds. Anything rare eventually finds its buyer because people with money
are hungry to find something in which to invest to avoid the erosion of their
wealth. The continuing interest in diamonds as investments shows that diamonds
remain a product that people hold in high esteem and that they trust to
maintain their value over the years.
Colored Diamonds
Another trend that is strengthening is the demand for fancy
color diamonds. Dealers love them, as they are not constricted by fixed price
lists with colored diamonds — every stone is different and prices vary
accordingly. That gives both buyers and sellers a wide selection of price
points because the dominant factor in the price is, of course, the color, with
clarity, cut and symmetry secondary considerations. A better grade in the 4Cs
enhances the value of a colored stone, but there is not the large penalty in
price because of a lower grade in any of the 4Cs that there is with white
stones.
Looking to 2012, it appears that the turbulence that existed
in most of the world’s economies in 2011 will not only continue, but possibly
escalate. The underlying economic problems were merely given a good coat of
paint, but the fundamentals have not been fixed and will continue to haunt the
industry and world markets in the new year.
The Marketplace
- Larger stones are still being sought regularly, with 10
the magic carat number. Anything larger is more difficult to move, as the total
price tag is more than a client wants to put into one stone.
- Carat sizes are still the priority, but they are now
moving into lower J-M colors, preferably in VS or, better still, SI. D and E in
SI are moving well and are in constant demand.
- There has been an increase in demand for goods below 1
carat. While dossiers are still required, more buyers are moving to uncertified
goods in parcels. In the lower colors and clarities to which the market is now
moving, the cost of certifying brings up the price of the goods too much so
dealers don’t bother with it.
- Stars and melees were moving well at year-end but a
slowdown is expected when jewelry factories in China close for the Chinese New
Year.
- Fancy colors were gaining strength with retailers who look
for either the top-end stones or the light yellows. With these stones, they can
produce solitaire rings at lower price points than with white diamonds.
Article from the Rapaport Magazine - January 2012. To subscribe click here.