RAPAPORT... The diamond market was taken aback by the May 23 Rapaport price list, in which virtually all grades went up by significant percentages, following only a minor adjustment just the week before. Many in the Hong Kong region felt that this price increase was ill-timed, as the local markets go into a slow gear for the summer months. But what caused the most upset was the Rapaport announcement on May 29 that, with prices now substantially higher, buyers did not have to continue paying the prevailing premiums.
Buyers, of course, took this statement literally and started to demand even larger discounts than usual. The market went into an immediate impasse, with suppliers crying that the increases only reflected the higher prices they had to pay for the rough and that they needed the increases to see a profit, and buyers steadfastly refusing to forego their usual discounts and pay higher prices than before. However, their stance softened in early June and they appeared more willing to buy with similar discounts and premiums on the old list for goods that are in high demand.
Following the Rap increase, the Russians advised their buyers that they should expect to start paying 20 percent more for their rough. The question everyone was asking was whether that announcement was a response to the Rap increase or if the list is merely a reflection of the price increase due to the more expensive rough.
So what is the bottom line? Will the industry be paying more for polished in a few weeks? Or are all these price adjustments just that — adjustments to past imbalances between rough sources and polished prices?
Diamonds as InvestmentIn Hong Kong, both gold and diamonds are treated more as investments, rather than as sentimental possessions. Once prices reach certain highs, consumers are quite prepared to sell their diamonds and put the money into something else, be it property or equities.
In addition, some of the currencies in Hong Kong’s neighboring markets have been depreciating, a few by more than 40 percent, and diamond owners from those countries are looking for buyers from countries with strong currencies. The sales have only just begun but, once they get going, they will really take off as diamond buyers descend to mop up cheap diamonds and consumers line up to cash in their diamonds. Some years ago, a similar frenzy of sales occurred in Korea, during a period when the won currency was losing its value at an alarming rate.
Hong Kong ShowThe annual Hong Kong Jewellery & Watch Fair, held June 19 to 22, is the last salvo before the diamond and jewelry trade starts the long, hot summer hiatus. Exhibitors came to the show with high expectations after what was, for most of them, a disappointing Las Vegas show. But they met the same price resistance from the Asian buyers, who were also, like the JCK buyers, much more careful in their buying.
Although Indian buyers still dominated the fair, they, too, were not as aggressive in their buying as in other recent shows. These buyers still have demand for better-clarity goods, but they are reluctant to pay the prices. Because there was a shortage of better-clarity goods in the show, buyers had great difficulty fulfilling their requirements.
There was a noticeable increase in the number of buyers from Mainland China. Unfortunately, there was also an acute shortage of the qualities that they needed. The rapidly appreciating yuan means that, for the Chinese market, diamonds are at least 7 percent to 8 percent cheaper in their local currency. It is a great pity that many Chinese buyers, absent from the most recent jewelry shows, finally came to this show and there was nothing for them to buy.
Most interesting was to see some of the Hong Kong diamond dealers buying more than they usually do at the shows. Perhaps Russia’s announcement of the increase in rough prices convinced dealers that now was the time to buy.
Diamond/Oil Syndrome
A new word has been coined to describe the oil situation — bubblemania. Oil prices have doubled in the past year and have increased by 40 percent since the beginning of 2008. Prices have nudged $140 a barrel and are touted to go over $150. Most of the demand is attributed to the huge appetite for oil from India and China, two of the most dynamic emerging supereconomies.
It is a fact that oil producers are not in a hurry to increase production to meet higher demand when they are getting three to four times more money for the same amount of oil pumped from the ground.
But what happens when a commodity is perceived to be overpriced, as both oil and diamonds were in the early 1980s? In that case, both commodities reached all-time highs and, within a few months, prices for both started to tumble. It was one of the biggest rollbacks in the diamond trade as the price of a D, IF 1-carat stone fell from more than $65,000 to under $7,000. The same scenario presents itself today and the industry is asking whether the results will be the same or if prices will continue to surge upward.
The Marketplace• Stones larger than 5 to 10 carats in H to J colors are still in great demand and can command desired prices. Buyers are more squeamish about investing in top-grade stones, unless they have a firm order in hand.
• VVS goods are in very short supply and seem to be what every buyer is looking for.
• Although some buyers still insist on triple EX stones, most are willing to concede on the cut in order to have a cheaper alternative.
Article from the Rapaport Magazine - July 2008. To subscribe click here.