Rapaport Magazine

Taxes Take a Toll

Hong Kong March Market Report

By Gaston D’Aquino

The first two months of 2012 were slower than usual because the Chinese New Year holiday shuttered some businesses and reduced trading time. Although retailers did well with gift-giving shoppers, the wholesale diamond business came to a standstill during the two-week holiday period. Another factor dampening sales was that the Hong Kong International Jewellery Show, held in early March in previous years, was shifted to mid-February this year. As a result, buyers held off on shopping and opted to wait until the show to replenish their inventory.

There was some market concern about whether the new 2 percent Indian import duty on diamonds, imposed in mid-January, would have a negative effect on sales during the show. But early indications were that the number of visitors from India would actually be greater than for the September 2011 show because at that time, most diamond companies were overstocked.

Hong Kong sellers were expecting Indian buyers to cite the added duties in trying to negotiate lower prices at the show, but the fact is that there is still a general shortage of goods in the market that are in demand. Eventually, a compromise on prices must be reached if buyers need the goods.

Over time, the new diamond duties will be absorbed by the Indian market because taxes once imposed are rarely reversed, especially now that all governments are scrambling to shore up their reserves in light of the economic chaos in Europe. At first, though, it is expected that the new duties will result in diamonds being shipped into India by alternative “unofficial” channels.

Hong Kong has always been a distribution hub for sending goods to most of the countries in the region and there are well-established Hong Kong companies with extensive expertise and connections to all markets. The Hong Kong show was expected to be a good indicator as to whether Indians will be sending their purchases through official channels or choosing alternative means.

Indian traders are legendary for their acumen in dealing with difficult or restrictive conditions. The more the government tries to clamp down on them, the more ways are conceived to circumvent the regulations. It would not surprise anyone if the Indian authorities actually collect less after imposing the new tariffs.

Chinese buyers returning from the long holiday will make their presence felt in Hong Kong. Retail sales in China in the first two months of the year actually were better than expected and there was an acceleration of demand. This good news came despite all the grim warnings that China might be heading for a hard financial landing because of a drop in its property markets and a decline in exports to its all-important markets in the U.S. and Europe.

Demand in China is still strongest in H to K colors in SI, but buyers are very selective as to the type of SI they will accept, resulting in an accumulation of black piqué SI goods in suppliers’ inventories. The recent price drop in VVS and VS goods in higher colors for 30-pointers and 40-pointers has heightened interest in these goods by some Hong Kong buyers, especially since the scarcity of SI goods has strengthened their prices recently. If the price gap between VVS, VS and SI would become narrower, it would increase sales of products in all price ranges.

If the strong demand continues only for SI, it will only be a matter of time before buyers will have to accept the black inclusions as well. Once that happens, it will open the door to the sale of piqué stones, which will significantly increase the overall volume of diamond sales in the region.

Recently, rough diamond producers have been trying to move their production down the line directly to diamond cutters, which may lower the costs of diamond manufacturers, enabling them to meet their customers’ prices. There are some diamond producers holding tenders in February for both rough and polished in Hong Kong, with the goal of winning new clients. Since they mine the diamonds themselves, they have more flexibility in how much to sell them for, as well as better information on prices generally.

The recent political and economic skittishness in the world has sidelined many diamond dealers, but this also has presented the opportunity for other companies to carve out a bigger slice of the market.



  • 10-carat DIF and flawless stones are still being sought but, apart from this grade, the trend has moved to lower colors and clarities.
  • Demand for carat sizes remains stable but, in line with market demand, has moved toward lower colors.

  • .50-carat stones in rounds are in strong demand, and prices are strong.

Article from the Rapaport Magazine - March 2012. To subscribe click here.

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