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Market Update: A Pivotal Week

Market Update: A Pivotal Week

This was a week that saw two landmark events take place in the diamond industry.

First, there were the Hong Kong trade fairs, one of the most anticipated events of the year. The other was a meeting that took place in London, which may prove to be as important, if not more important. 

 

Hong Kong Trade Fair

While the Hong Kong diamond and jewelry trade show was not a highly successful show, it had some positive elements to it. Loose diamond traders exhibiting at the show, which opened on March 2 at AsiaWorld-Expo near the Hong Kong airport, reported mediocre sales during the first two days of the show but did take comfort in the fact that transactions in 2-carat and smaller size range in medium colors and qualities poured some cash flow into the industry and created a bottom basis for pricing ahead of the Basel show next week. 

b2ap3_thumbnail_Ehud-Laniado-Hong-Kong-Trade-Fair.jpg

Hong Kong diamond and jewelry trade show

The Chinese middle class represents a huge market for those goods and the presence of some Mainland Chinese buyers gave exhibitors a boost in sales and hopes for the future. 

Hong Kong was the epicenter of the diamond world this past week, with two of its venues hosting exhibitions, just as they have the last two years. The show at AsiaWorld Expo was devoted to loose gems. The other display at the Hong Kong Exhibition Centre was primarily for jewelry.

Once the jewelry exhibition opened at the trade fair’s second location, traffic migrated away from the first location and the corridors between the booths at the AsiaWorld Expo lost potential clients. 

 

Slowdown from China

The timing of the Hong Kong trade show this year may explain smaller number of buyers who visited the loose diamond exhibition. According to many of the exhibitors, the fact that the Chinese New Year vacation only ended on March 5th has been the reason that many Mainland Chinese buyers did not attend the first part of the show. 

Mainland Chinese also are apparently suffering from liquidity issues, so those that did attend were largely seeking suppliers that were willing to provide them with long-term payments of three-to-six months. Today, most suppliers are unwilling to do so, further decreasing business.

A feverish pace

Many exhibitors suffered from sheer exhaustion after having presented in so many trade shows one after the other. There was little respite between shows in New York, Antwerp, Israel, India, Shen Zhen, Beijing, Shanghai, and Hong Kong. Soon, exhibitors will be flocking to Basel and Macao. Despite the hectic schedule, there were some exhibitors who told us that they depend on those trade shows, and they focus on those suitable for the type of goods that they manufacture or deal with. 

Exhibitors reported that they have been pressured to prolong payment terms up to 90 days. Apparently, banks in China are reluctant to provide financing. Meanwhile, both China and Hong Kong have instituted tougher regulation. In China, banks tightened their credit facilities while financial lenders in Hong Kong have placed restrictions on the amount of cash that they are allowing customers to deposit. These tighter limits have become an additional burden on the Industry. Once again, financing and liquidity is a hurdle.

Quoted prices were reportedly down by around 5% for round- and fancy-shape diamonds in the 1-5 carat size range. Special large and fancy colored stones as well as princess and emerald cuts have been sold at ask prices according to some of the exhibitors. Many exhibitors reported strong sales for stones smaller than 1 carat in all categories as mentioned above. 

The mediocre sales did not justify the unusual increase that leading diamond indexes made last Saturday (February 28), led by 2-carat rounds. 

Rough Not As Tough

Rough diamond tenders have done pretty well in the last two weeks and manufacturers have been actively seeking and offering suitable goods at corrected prices. In addition, Sightholders refused (goods turned down due to incorrect pricing) and deferred (goods postponed to next sale cycle) less of their allocated boxes. This may indicate that market forces have gradually played their role and pushed primary sources to a price that the market can live with. Cash flow has also improved due to both new sources of bank financing and more sales generated as well as a need for a larger variety of polished goods. 

Alrosa’s clients are reporting that they have been led to understand that the next sale's volume will remain unchanged, without any major price fluctuations. Is this due to positive feedback that the primary suppliers are getting from their clients? Or perhaps it is due to the fact that manufacturers are looking to keep their factories moving forward in anticipation of future market developments?

 b2ap3_thumbnail_Ehud-Laniado-Polish-Diamond.jpg

Polished Diamond

London Meeting

The other big story this past week was a meeting in London held by a group of diamond miners. The participants met to discuss two issues which need to be addressed by the diamond industry: Lab-made goods and marketing. 

Among the attendees were representatives from De Beers, Alrosa, Petra Diamonds, Gem Diamonds, Lucara Diamond, Dominion Diamond, Lukoil and Rio Tinto, which hosted the meeting, according to a Bloomberg report

The changes in the diamond industry that have taken place for the past 15 years have left it without generic marketing as pointed out some time ago, especially after De Beers relinquished its custodian role.

According to the report, there were few details divulged about the meeting, which focused on topics including diamond marketing, industry research, and the threat to consumer confidence from undisclosed lab-grown stones entering the market.

The issue of undisclosed lab-made goods, which has been extensively reported upon in a series of media stories, is rocking the industry.  According to market sources, sellers have been known to cancel transactions abruptly if buyers insist on testing the diamonds independently to ensure they are natural. 

In Surat, where detection machines are not as widely available as in Mumbai, reports of natural diamond parcels mixed with undisclosed lab-made goods surface at a worrying rate.

It should be emphasized in this context that lab-grown goods are not necessarily bad. There is no doubt that a niche and a parallel market for such items has emerged. Nonetheless, disclosure is a must. Failure to disclose that some or all the goods in a parcel are lab-grown is illegal. This practice must be rejected by the industry.

Financing

According to reports from a number of sources, banks in Dubai have provided large amounts of financing to the midstream (manufacturers) in the past couple of months. This financing partially fills a gap left by Antwerp Diamond Bank, which is currently in the process of closing down.

 

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified advisor.

 

 

 

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