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Hong Kong Speculation

Editorial

Mar 1, 2013 6:00 AM   By Avi Krawitz
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RAPAPORT... As far as trade shows go, there are only a select few, among the many on the diamond ‎and jewelry industry calendar, that tend to set the tone for the market. ‎

JCK Las Vegas provides dealers with a fair picture of the state of the all-important U.S. ‎market. In recent years, Mumbai’s India International Jewellery Show (IIJS) in August ‎proved to be a turning point for dealers gearing up for the Diwali and Christmas seasons, ‎while the Hong Kong events in March and September have become important ‎bellwethers of Far East demand and overall diamond trading.‎

This year is no different and anticipation has risen for the Hong Kong International ‎Jewellery Show that takes place from March 5 to 9. Carefully timed, next week’s show ‎follows the Chinese New Year Golden Week which occurred at the beginning of ‎February, giving retailers in the region their first opportunity to buy goods and replenish ‎sold inventory. ‎

In the run up to the show, polished dealers are wondering if Chinese buyers are ready to ‎return to the market in a serious way after pulling back in 2012. Suppliers are trying to ‎assess how the spring festival season really was, and the extent to which positive, or ‎poor, dealer trading will resonate in other markets and set the mood for the coming ‎months. ‎

By many accounts, market sentiment has been relatively upbeat so far in 2013. One ‎major Indian diamond manufacturer told Rapaport News this week that the current ‎quarter has been the strongest since the start of India’s current fiscal year that began in ‎April 2012. Granted, the past year hasn’t set a high standard to compare with.‎

Still, suppliers the world over are encouraged by the recent polished price stability as the ‎RapNet Diamond Index (RAPI) for 1-carat certified diamonds is up 0.2 percent for the ‎year so far. RAPI for 0.3-carat stones has increased close to 3 percent on the back of ‎strong demand and apparent shortages in certain categories in these sizes.‎

They’re hoping the uptrend will continue, particularly as rough prices have increased ‎during the current February sight cycle. Rough dealers on the secondary market are ‎seeing premiums of 5 percent to 8 percent on De Beers boxes again and the mining ‎company reportedly increased prices by around 4 percent at this week’s sight, albeit ‎largely by adjusting assortments to raise the value of their boxes. Anecdotal reports ‎indicate similar hikes at BHP Billiton and ALROSA.‎

Manufacturers may use that as an excuse to increase their polished prices at the show. ‎One Indian dealer at this past week’s quiet Signature show in Mumbai stressed that he ‎expects buyers may well be surprised by higher prices in Hong Kong. ‎

But he may be confusing expectations with hope as there remains an undercurrent of ‎uncertainty in the market amid the newfound optimism.‎

For one, there is no reason to suggest that polished prices should increase on the back of ‎rough price hikes that have taken effect. If anything, many in the manufacturing sector ‎are perplexed by the recent spike in rough trading and are expressing real concern that ‎rough buying may be influenced by speculative expectations that prices will rise again. ‎The level of polished demand does not yet warrant such rough price increases, they ‎caution.‎

Rather than being influenced by an uptick in consumer demand, rough prices have been ‎upheld by carefully managed lower production and supply. The manufacturing sector, ‎which ended 2012 with high inventory and relatively low operating levels, has slowly ‎started to increase its output. Cutters appear to have sufficient rough to satisfy their ‎manufacturing needs giving further evidence to a speculative element influencing the ‎recent improvement in rough trading. ‎

And there does not appear to be excessive amounts of polished coming to the market. ‎Following India’s wedding season, during which many cutters took extended vacations, ‎and the pending financial year-end on March 31, manufacturing is expected to ramp up ‎significantly only in April – if there is a need. As a result, suppliers note some difficulty to ‎source diamonds that are in demand at the moment. Indeed, coming to Hong Kong with ‎the right goods may be the key to a successful show.‎

Buyers clearly view the market in a different light. From their perspective they aren’t ‎seeing any great urgency to buy on a very large scale. Certainly, they are not looking to ‎build inventory. There are reports of steady buying from the major U.S. jewelry retailers, ‎who have their programs in place while smaller operations remain cautious. Europe is still ‎weak, with the region’s economic concerns compounded by Italy’s election non-result ‎this week, while the Middle East and Far East are stable. De Beers, among others, ‎expects just moderate growth in diamond jewelry demand in 2013.‎

Overall, in fact, the polished market appears to be in balance, whereas the rough seems ‎to be jumping the gun a bit. Whether that will be enough to stimulate overall strong trading ‎at the Hong Kong show remains to be seen. A more likely scenario would bring pockets ‎of positive trading to the show as there have been in the market this year. Given current ‎market feedback, that would include steady demand for dossier certs, particularly 0.30-‎carat to 0.50-carat and 1-carat, VS-SI, and Triple Ex stones.  ‎

And that should be sufficient for suppliers at this stage of the year. Anything less, or more ‎for that matter, could be reason for concern. For an overly bullish polished market would ‎not be sustained given the current levels of consumer demand and the muted ‎expectations for the year. The same is true for the rough. It appears that the Hong Kong ‎show’s legacy may well be to maintain the polished, and return the rough trade to a state ‎of equilibrium. That would set a positive tone for the market indeed.   ‎

The writer can be contacted at avi@diamonds.net.

Follow Avi on Twitter: @AviKrawitz

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.rapnet.com or contact your local Rapaport office.


Copyright © 2013 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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Tags: Avi Krawitz, De Beers, diamonds, Hong Kong, jewellery, Jewelry, Rapaport
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