Hong Kong Show — Caution and Price Resistance


Hong Kong Show – Caution and Price Resistance

Russell Shor, Senior Industry Analyst

Hong Kong, September 2011 — The world diamond industry looked at the September Hong Kong Jewellery and Gem Fair as a make-or-break event for the fall season. It has turned out to be neither.
In the weeks leading up to the show, the rough market stalled and polished prices softened an average of 5-10% as the outlook for the global economy dimmed. Diamond manufacturers hoped strong demand at the world’s largest jewelry show would boost prices and reinvigorate the market.
“What we have is decent demand, but extreme price resistance,” said one major manufacturer. “Buyers want goods, but they are very cautious.”
Diamond companies cite a number of factors contributing to the price resistance.
First, some larger firms are facing increasingly tight credit from banks, and needed to raise cash at this show to satisfy lender requirements.
“There are a number of large sellers who couldn’t hold the line on prices — some had to sell recently cut goods at a loss — and this has put pressure on other exhibitors to lower their prices,” said the manufacturer.
Second, with some 500 diamond firms crammed within the same show floor, tough bargaining becomes easy. Buyers go from exhibitor to exhibitor angling for the best prices, and deals often are not made until the final hours of the show.
Third, buyers are worried that Asia’s fast-growing economies may slow because of the continuing problems in their major export markets, the U.S. and Europe.
Hong Kong shipping firms noted that cargo bookings from Chinese exporters have been running 10% below last year as Western retailers trim their orders for the fall season.
Hong Kong Show — Caution and Price Resistance
Fourth, Asian consumers are becoming more price conscious. Retailers and exhibitors report considerable downtrading in diamond quality demand.
“They still want diamonds,” noted one exhibitor, “but now they want SI clarities instead of VS.”
The Diamond Trading Company sight for September will likely be much smaller than the two previous near-record allocations, which were close to $900 million each. Most of the price increases (averaging 4-6%) seemed concentrated in smaller goods — probably because Indian manufacturers needed these sizes to push out orders before closing in late October for Diwali. The September sight, held immediately after Hong Kong, will consist mainly of larger goods, dealers said.
Colored stone demand at the Hong Kong show was spotty. Quality emeralds were popular because green is coming into fashion, with jade prices hitting extreme levels. Multicolored pearl strands were also popular.
RETAIL: The rising cost of diamonds and gold (up 40% over 2010) has inflated retail jewelers’ second-quarter earnings. But the retailers have performed much better than current economic circumstances would suggest.
Tiffany & Co. reported its sales rose 25%, with same-store sales up 23%. Same-store sales in the U.S. rose 19% — at least 9% of which are real increases.
Signet Group, owner of Kay Jewelers and Jared The Galleria of Jewelry in the U.S., said sales rose 11.3% to $643 million. Same-store sales for the period increased 12.2%. The higher-ticket Jared chain reported total sales of $213.8 million, with an average selling price per unit of $834.
MACRO: The International Monetary Fund has downgraded its forecast for economic growth in the U.S. and Europe. The IMF does not see a downturn but predicts that U.S. growth will slow to 1.5% for the remainder of this year and about 1.8% next year (1% below earlier forecasts). Its forecast for Europe is for 1.1% growth in the coming year.

Article courtesy GIA Insider