Celebrating chinese buyers kill Hong Kong fair

Edahn Golan

The September Hong Kong Jewellery & Gem Fair closed without providing the kind of high demands for loose diamonds that everyone had secretly hoped for. So what did happen at the show, and why was demand lower than anticipated? Traders arrived at the fair knowing exactly what they wanted to buy, with almost no one stocking up for inventory. With such specific demands and buying, price was the sole factor, and buyers shopped around before purchasing.

The situation is a direct outcome of the runaway demand in the first half of 2011. At that time, Indian gold jewelry retailers started to offer diamond jewelry. More importantly, in China, retailers opened new stores and needed goods to stock them. The reaction among suppliers to this increased demand was a swelling in prices.However, by July 2011, they had had their fill, demand abated, prices dropped and have yet to recover. It has been more than a year since then, and the hope was that by now these retailers would have been back to restock their inventories.

Low inventories, low demand

So if inventories are low, why is demand not rising? In India, consumers have somewhat lost their appetite for diamond jewelry. A combination of falling exchange rates and rising gold prices told consumers that if they wanted to protect their savings, gold jewelry was a better option.Retailers, therefore, were not that keen on buying diamond jewelry at the trade show in Mumbai in August, and – not surprisingly – still had limited need of goods when the Hong Kong fair opened a few weeks later.

Without heavy demand from India, hope is pinned on Chinese buyers. Consumer demand has slowed a little in China, but not enough to explain the continued sluggish demand from retailers and wholesalers. The issue, in this case, is timing. On October 1st, China celebrates National Day, a weeklong celebration. During the week prior to the celebration, when the Hong Kong fair is held, factories close down and few buyers have the time to deal with a trade fair, especially if the goods will just be sitting idle while they are on vacation the following week.

Many Chinese buyers prefer buying after the vacation.Hence, the low demand from China. That is why the March Hong Kong show has been so strong in the past few years.

With both Indian and Chinese buyers essentially out of the picture, the Hong Kong fair had little to offer diamond wholesalers this year.

In one of my taxi rides to the show, I shared a cab with two metal suppliers. A few minutes into the ride, and after introductions, one of them asked, “If diamonds look so similar, basically the competition is price, isn’t it?” Wham, he nailed it! It’s now all about price.

With hundreds of suppliers exhibiting, naturally, it was the bigger firms that sold more. If price is the issue, selling large volumes means businesses can still generate a sizable income. In addition, the larger firms are more sensitive to bank credit and are motivated to sell. Mid-sized and smaller firms are less flexible and expressed less satisfaction from the fair’s results.

Buyers were mainly interested in VS-SI goods, leaning more towards the top DEF colors. Lower clarities – SI-I1 goods in HIJ colors were also in good demand, however, both ranges faced serious price resistance by buyers.

Larger goods, +3 carats, items that are harder to come by, were in good demand whereas 1-2 carat goods – with more uncertainty over their price – were open to price wars between buyers and sellers.

And the path from here? Further price sensitivity may be seen for items that were in lower demand. At the same time, if wholesalers hold out and don’t budge will likely see Chinese buyers succumbing to their inventory pressures and willing to pay the price come mid-October.

Source Idexonline