4Q Market Awakening Expected

Diamond dealers are hoping the September Hong Kong Show will stimulate diamond trading ahead of the important fourth-quarter season.

By Avi Krawitz

Diamond suppliers set up their booths at the India International Jewellery Show (IIJS) thinking more about Hong Kong than Mumbai. As far as shows go, they noted, the September Hong Kong Jewellery & Gem Fair has a greater bearing on the state of the global diamond market than IIJS.
This year, again, India’s jewelry retailers saw the Mumbai event as an opportunity to stock up on gold products ahead of the Diwali season, India’s busiest gold-buying festival. Diamond trading was less of a focus — especially given that global demand has been sluggish this year and trading is seasonally slow in August, exhibitors reported.
Diamond suppliers also had low expectations for IIJS because the show is largely about satisfying domestic Indian demand rather than international trading. While India is the third-largest market for diamond jewelry, it still only accounts for about 7 percent of global polished diamond consumption, and, by default, local manufacturers’ supply, noted Sabyasachi Ray, executive director of the Gem and Jewellery Export Promotion Council (GJEPC), which organizes IIJS.
The major diamond suppliers rely on exports for the bulk of their turnover so their participation in IIJS is more of a branding exercise than a significant sales opportunity, added Jatin Gajera, of Laxmi Diamond, a Mumbai-based diamond manufacturer.

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Somewhat Steady Gold Demand
With the focus on gold, activity at IIJS was steady if slightly below previous years as inventory levels were higher than usual. A 42-day strike during March and April impacted sales during the important wedding season, meaning retailers still had leftover stock from earlier in the year.
Consumers also cashed in on the recent rise in gold prices by selling back jewelry to retailers, who were consequently left holding larger inventory and lower liquidity, reported Sanjay Shah, director of Gold Star Jewellery. There was a rise in recycling activity whereby consumers sell gold jewelry for cash in the second quarter, the World Gold Council (WGC) explained. (See Share of Gold Jewelry Demand in 1H 2016 chart in slideshow.)
“Jewelry consumers have faced a tough environment in 2016 so far,” the WGC wrote in its quarterly Gold Demand Trends report. “Steep price rises have done little to attract demand in more price-sensitive markets.” Indian consumers are notoriously wary of price instability and this year has proven to be no exception, the WGC added.
Still, jewelry wholesalers at IIJS were confident there is pent up gold demand ahead of the Diwali season, which begins on October 30, since consumers haven’t bought in a while and many feel gold prices will rise further. Gold increased 26 percent since the beginning of the year to $1,339 per ounce or in rupees to INR 31,225 per 10 grams at press time. Investors shifted to the yellow metal amid currency volatility and uncertainty following the U.K.’s vote to leave the European Union (EU). Some jewelers said they still expect gold to rise to INR 35,000, which they believe is spurring additional demand, voicing their prevailing sentiment that “people in India buy as long as gold is stable or trending upward.”

Turning to Hong Kong
The trade is less certain about trends in the diamond market as polished prices have softened since April. The RapNet Diamond Index (RAPI™) for 1-carat diamonds fell .9 percent in the period August 1 to 22 (see RapNet Diamond Index [RAPI™] chart in slideshow).
The Hong Kong show is expected to signal an end to the “quiet season” because people need goods for Christmas and the Chinese New Year, explained Gajera.
Chinese consumer confidence has stabilized but Hong Kong’s luxury market continues to slide and polished diamond imports to the municipality decreased 9 percent in the first half of the year. Encouragingly, Hong Kong’s polished exports to China grew 19 percent, while imports from the Mainland dropped by the same margin, signaling a significant rise in polished diamond consumption in China (see Hong Kong Polished Diamond Trade chart in slideshow).
However, overall trading was quiet in August with the bourses in Antwerp and Ramat Gan closed for the annual summer vacations. Buyers remained selective and price sensitive, with steady demand for 1-carat to 2.99-carat, D to I color, SI1 to I2 clarity diamonds, while demand softened for VS-and-better clarity goods in the same size category. Stars and melee were weak due to sluggish demand and concerns about synthetics.

Fourth-Quarter Boost
Detecting synthetics was a prevalent theme at IIJS as technology companies displayed their newest innovations, while manufacturers again stressed the need to boost demand for natural diamonds through generic marketing. Recognizing that, De Beers partnered with the GJEPC to run a category-based marketing campaign during Diwali.
The campaign will likely focus on small diamonds, “targeting the gifting of diamond jewelry to young married women,” said Bruce Cleaver, De Beers CEO. “Such a well-directed campaign would be a real boost for diamond jewelry demand in India’s vibrant and growing consumer sector,” he added.
While local manufacturers recognized the growth potential in the local market, the bulk of Indian diamond manufacturers’ supply remains earmarked for export. They were consequently more focused on preparing for the Hong Kong show than what happened at IIJS, or the lack of activity in the Antwerp and Israeli bourses during August.
“Hong Kong is very important because it’s well timed to attract Chinese buyers and international dealers ahead of the season in the U.S. and the Chinese New Year,” Gajera said. “We wouldn’t have expected great sales in August but I believe we can be optimistic from September onward.”

Article from the Rapaport Magazine - September 2016. To subscribe click here.

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Tags: Avi Krawitz