China, which holds a large portion of its foreign reserves in U.S. Treasury bonds, has repeatedly expressed its concern
about a fall in the value of the dollar. Several months ago, the South China Morning Post, the leading English-language newspaper in Hong Kong, reported that the country, in an effort to offset some of that reliance on the dollar, had made massive investments in Zimbabwe and was being repaid in hard commodities, one of which happened to be diamonds.
Until recently, most diamonds exported from Zimbabwe had local certificates but not Kimberley Process (KP) certification. Legally and officially, diamonds without KP certification were embargoed from export pending resolution of human rights abuse allegations at Zimbabwe’s mining sights. Despite the embargo, it was widely rumored that Zimbabwe diamonds were getting out of the country and that they were mixing with other certified diamonds from other sources in the pipeline. Many markets were uncomfortable handling them without KP certification. Still, they allegedly were being sold in surreptitious circumstances at big discounts.
Path to Export Still Not Clear
Despite strong opposition from the U.S., Canada and the European Union (EU), on June 24, 2011, the KP cleared the way for the certification — and export — of diamonds by the two principal companies operating in the Marange fields of Zimbabwe. KP officials noted that the approval extended only to diamonds mined in areas where there have not been allegations of human rights abuses. However, diamonds mined in different areas of the country are not distinguished from each other and the government is not expected to implement any distinctions when it is under considerable pressure to begin selling its huge stockpile of rough to raise money to run the country.
In the past, some dealers in Zimbabwe diamonds did declare their origin, but not everyone was as principled. In many cases, buyers merely relied on the declaration of the sellers that the diamonds came from legitimate sources not involved in the funding of conflict and that they were “in compliance with United Nations (UN) resolutions,” an intentionally vague statement that avoided any reference to the KP.
The KP decision to allow the export of some Zimbabwe diamonds has led to a troublesome situation where diamonds from the same country — some of which are legal and some of which are not — are being fed into the same diamond pipeline. Such a situation further complicates the policing of the flow of Zimbabwe diamonds into the world markets and further jeopardizes the integrity of the global diamond pipeline.
Not until gem labs can identify diamonds by the mines from which they came will it be possible to segregate Zimbabwe diamonds into those from areas of alleged abuses and those from areas where no abuse is alleged. Such identification might be feasible in the future but it would require a considerable upgrading of laboratory equipment and expansion of the database of diamond characteristics by mine of origin.
Slow Start to Show
The complete lack of buyer traffic in the first hours of the Hong Kong Jewellery & Gem Fair in late June added to the unsettled mood of exhibitors. The problem was that show organizers had badly miscalculated the number of visitors who would attend and had failed to provide enough manpower to register buyers. As a result, some show attendees had waits of one to three hours to register. Some left the long lines and went directly to lunch or decided to come back the next day. Although preregistration on the internet is available, that option closes some time before the show opens. It has been suggested that the internet registration option should be extended to two to three days before the show, especially since many attendees couldn’t confirm travel reservations until the last minute because there were long waiting lists for flights to Hong Kong.
By the second day of the show, traffic was back to normal and deals were being closed by buyers. Most had willingly accepted the Rapaport List’s higher prices, posted the week before the show opened, but initially were reluctant to buy without the premiums and discounts they had enjoyed before the price increases. Trading volume was definitely less than at the Hong Kong March show, but still a marked improvement from past June shows. The June show is growing in importance year on year.
What Sold
Buyers at the show were interested in fancy cuts, whose prices have not increased as much as rounds, and fancy colors, which are not tied to a price list, leaving more flexibility for buyers and sellers to negotiate price. Demand for VS and SI in all colors and sizes continues to be strong, but there was a marked shortage of these desirable goods. Smaller sizes below 1 carat in both dossiers and boxes did well, and manufacturers who specialize in these sizes were very busy and reported that they did extremely well in this show.
The Marketplace
• Carat sizes are the mainstay, although retailers are finding it difficult to justify premiums and single-digit discounts to consumers.
• Downsizing and the lowering of color and clarities to meet price points is more prevalent.
• Despite higher premiums, stones over 10 carats are moving well, due to scarce supply.
• Overall, the market is quiet for the summer, with signs of improvement expected around mid-August.
Article from the Rapaport Magazine - August 2011. To subscribe click here.