Industry Analysis

Hong Kong Show: Buyer-Seller Showdown on Prices


Buyers look over gemstones at the September 2015 Hong Kong Jewellery & Gem Fair last week. Photo by Russell Shor

The September Hong Kong Jewellery & Gem Fair opened with some hard bargaining that had diamond and gemstone dealers hoping for deals.

With the down-turn in China putting the brake on other Asian economies, expectations for this show, the world’s largest, were not high. But demand, albeit reduced, is there and retailers and jewellery manufacturers aggressively shopped for bargains from diamond dealers who had cut their inventories from very expensive rough and remain under intense pressure from their bankers to show a profit.

The show is an important guide to how De Beers and Alrosa will conduct their final three sights/sales for the year.

In August, De Beers cut its usual sight total by more than half to a reported $250 million (£160 million) and lowered prices by an average of 9% − concentrated mainly in medium- to better-quality goods that would polish out to between 0.30 carat (ct.) and 0.75 ct., where inventory levels are highest. And Alrosa, the world’s largest diamond producer by volume, followed suit, cutting volume and prices by similar amounts at its September sale.

The results of the Hong Kong show will determine whether or not these two producers, which account for nearly three-quarters of the rough market, resume “normal” sales or continue to rein in supplies.

Reports from the state of Gujarat, India, where the vast majority of diamond manufacturers are located, say many facilities have cut workers’ hours by as much as 40% because of reduced demand and high inventories, while an estimated 20,000 to 30,000 (5-7% of the workforce) have lost their jobs.

Gujarat’s government is worried that the troubles in the diamond industry could exacerbate the existing unrest from the Patel community, which is demanding a larger share of government and academic jobs. A significant percentage of the diamond workforce belongs to this group, which had been one of the most prosperous in the region.

Demand for emeralds remains robust. Gemfields achieved strong prices at its September auction of rough from its Kagem Mine in Zambia. The Singapore sale of 600,000 carats realised $34.7 million (£22.3 million), for an average price of $58.42 (£37.63) per carat – the third highest total in the six years since the company has been auctioning Kagem material. This auction included finer quality material of various grades. The company also sells lower quality material, which is classified as beryl, in separate sales.

RETAIL

U.S. retail analysts were heartened by August’s improved job report and a very strong upward spike in the Conference Board’s Consumer Confidence index. The index, which had declined to 91.0 in July, rose more than 10 points to 101.5 in August as consumers became more positive about the economy.

“Consumers’ assessment of current conditions was considerably more positive, primarily due to a more favourable appraisal of the labour market,” said Lynn Franco, director of Economic Indicators at The Conference Board. “The uncertainty expressed last month about the short-term outlook has dissipated and consumers are once again feeling optimistic about the near future. Income expectations, however, were little improved.”

De Beers’ executives remain “cautiously optimistic” about final quarter diamond jewellery sales.

There are several reasons for their optimism regarding the U.S. One, the company is reviving its generic “Diamonds Are Forever” advertising campaigns that it stopped several years ago. Some analysts blame the lacklustre diamond demand of the past five years on the ending of these campaigns.

Second, the U.S. dollar has risen strongly among most major currencies, which helps keep prices stable in the country, even if it does dampen demand in foreign markets. In China, for example, the diamonds from the August sight will cost 6% more because its currency has declined by that much against the dollar in the past month.

Russell Shor is senior industry analyst at GIA in Carlsbad.