Rapaport Magazine

U. S. Wholesale Market Report

High Prices Haunt Market

By Margo DeAngelo
RAPAPORT...  In July, diamond prices were on the minds of U.S. wholesalers. Yosef Poplack, of Nanasi Enterprises Inc (N.E.I.) in Hackensack, New Jersey, remarked “Price is always a concern. We haven’t really stocked in a while because of current markets. For me to sell a stone right now, it will cost a lot more to replace it.”

Bubble Fears

Some don’t see the situation changing anytime soon. Sam Nazarian, owner of A&M Diamond and Jewelry in Los Angeles, California, explained, “I believe prices will go higher because De Beers has increased its rough prices from 5 to 15 percent. That means that real diamond prices, after cutting and polishing, will go up about 20 to 30 percent.”

Derek Parsons, vice president of the British Diamond Import Company in Fort Lauderdale, Florida, sees a twofold problem. “We are in the doldrums because of the economy. We have certainly added to that with dealer-to-dealer speculation.” he declared.

There is also the practical issue of how diamonds fit into everyday life now that they are increasing in value, and what that could mean for consumer demand. “What is happening is that small diamonds — about 1 carat — are moving out of the reach of the blue-collar worker. And larger diamonds — those that used to be around $150,000 and are now worth $1 million — have become a security issue and a target for criminals. You have difficulty selling items to the end user and the risk of a bubble about to burst. This is a defining moment for us,” stated Parsons.

Retailer Acceptance

No one who spoke to RDR, however, reported price resistance from clients. Shakeel Japanwala, manager of C.D. Diam in New York City, noted, “Diamonds have been going up in the past couple of months, as well as metals, and you try to keep prices down, but you can’t lose money, either. I think the retailers understand what is going on.” Poplack concurred, “If they want a specific thing, my clients know what it is going to cost.”

Supplies remain tight, but not impossible to find. Japanwala described his own rough supplies as “okay” but conceded, “There is a shortage of rough all the time.” Alan Levine, vice president at New York City’s Bill Levine Diamonds, recalled some minor delays from his suppliers, but nothing that impacted his bottom line. “On occasion, you’ve had to wait a little longer, but just like everything, if you are willing to buy, you will get it. We haven’t had an issue with it.”

Late-summer slumps are well known to the diamond industry, but this year many are blaming the economy. “Luxury items are the last thing people are going to think of right now,” commented Poplack. Japanwala noted, “Gas is going to play a role now. It’s very quiet, but it’s just a moment in the market. It’s not completely dead. If the price is cheap, they will buy.”

Election-Year Blues

A number of wholesalers feel that America’s political climate is a factor. Levine said it affects the consumer’s mindset. “If you go by the regular formula, there is always uncertainty before an election. Whatever your political belief, no matter who wins, once the election is settled, it’s settled. People don’t like instability. I think that stability will help the economy. I think we’ll see a definite uptick moving into Christmas.” Poplack agreed, asserting, “After the election, it will get better.”

Nazarian also expects improvement in the fall, but for the simple reason of supply and demand. “Closer to October or November, it will be okay — much better than what we have today. Retailers have a lot of merchandise right now. Eventually, in about two or three months, they will need merchandise.”

Poplack thinks we’ve seen the worst of it. “Retailers are being cautious right now. They are not buying a lot of inventory. Before, they were surviving on watch repairs and gold purchases, but now I am hearing that they are doing better. Things are starting to pick up.”

Others feel the pain has just begun. “Speaking as a dealer with modest capital, it is very hard to know what product mix to carry if you want to stay in business as a diamond dealer. You have to have more capital and earn smaller margins while taking on more risk. Myself, I’m vertically integrating. I’m opening a retail store. I have serious concerns about the role of the small diamond wholesaler. I see the demise of the small diamond dealer in the next five years,” warned Parsons.

The Marketplace

• Goods with Gemological Institute of America (GIA) certificates are moving well.
• VVS diamonds are losing some ground to VS and SI.
• Rounds and princesses remain the two top sellers for this market.
• Demand for pears and ovals has increased slightly.
• Melee is meeting moderate demand.
• Large, high-quality goods continue to be very strong.

Article from the Rapaport Magazine - August 2008. To subscribe click here.

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