What Do The Weak Hong Kong Shows Say About Our Future?

Hong Kong Show weak, diamond prices current
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There were very few smiling faces on the way out of the March Hong Kong trade show. The few people that did express a positive sentiment were either oblivious to the outcome of the shows or simply happy to see a familiar face they had not seen in a while.

The social aspects of all trade shows are important, but that is not what drives the global exhibition industry. It is business, of course, that drives companies and people to put immense effort, time, thought and money into exhibiting. In return, exhibitors expect to generate sales and contacts that result in more business after the fair ends. The recent Hong Kong trade shows were no different.

Weak Hong Kong Trade Show

It is true that fewer Mainland Chinese jewelry manufacturers attended the Hong Kong International Diamond, Gem & Pearl Show as the timing of the show was less than ideal, with most of it taking place before the weeklong Chinese New Year vacation ended. However, if timing were the only problem, why was the next show – the Hong Kong International Jewellery Show – that ran mainly after the holiday ended, so weak? One Italian jewelry maker stated that he and other exhibitors he spoke with have concluded that this was their slowest Hong Kong March trade show in several years.

Hong Kong show booth - trader and buyersThere are objective reasons for this. For example, a shift in the Chinese government’s economic approach has led to a tightening of bank credit. This comes on top of a crackdown on corruption that resulted in a decline in the sales of whiskey, watches and diamond jewelry, or so it is erroneously believed.

The global diamond industry has stepped away from providing long-term credit because of its own financial woes. These affects of credit tightening were seen at the trade show, with Mainland jewelry makers asking for long-term payment terms of three to six months.

Most diamond traders today are willing to offer 30-day payment terms and only to established clients with a good payment track record. This is so fundamental that one exhibitor told me that prospective buyers were asked up front how they intended to pay. If they wanted to delayed payment terms, they were turned away.

Changing Consumer Tastes

Demands for polished diamonds were limited at the show, and focused mainly on pointers, goods smaller than one carat such as fifth, quarter and third carats, some 0.70 and 0.90 rounds in VS-SI qualities and mid-range colors. There were also some sales of larger goods, carats, 2-carats and even larger, but not in top qualities. Fancy colors were also in some demand, both yellows and pinks – but again, in the vivid range and not in the top fancy range.

In all cases, buyers were looking for lower cost items. After all, a mid-color, SI, 2-carat diamond can cost the same as a smaller high color diamond. Size, it seems, trumps quality, and price points are sliding down – and that is the heart of the issue.

Let’s take jewelry retail giant Chow Tai Fook as an example. It reported that retail jewelry sales increased at their Mainland China stores by 22% in the 14 days prior to and the first four days of the Chinese New Year.

Same store sales rose 11%, and their sales volume increased 9%, indicating a somewhat better overall average price point at their Mainland China stores.

But has price point improved for gem-set jewelry? While sales of gem-set jewelry in Mainland China by Chow Tai Fook jumped 62%, gold products declined 2%. This may indicate that the average price point for diamond-set jewelry has actually declined.

This means that the chase for lower price-point items at the Hong Kong trade show is actually a trend, and it is echoing the US Christmas holiday sales trend – more diamond jewelry items are sold, but the average price point is lower, sometimes much lower.

At the same time, sales of gold jewelry are sinking with the price of the metal, especially in markets where gold is bought as a store of value.

Current Polished Diamond Prices

Loose diamond prices, which many traders hoped would increase a little due to demand at the show, were set at a low level. However, this was not enough to spur buying activity. After months of declining prices and high rough diamond prices, it is almost as if the lower prices are just not low enough.

Even the news that a group of Indian manufacturers decided to publish their current diamond prices at list rather than at the discount at which they typically post them on the trading platforms did not really cause prices to budge – even though the indexes reacted to them.

Buyers Buy, but Business is Suffering

The problem the diamond industry is possibly facing has more to do with consumer taste shifting away from diamond jewelry. Sellers of 2-carat and larger goods, manufacturers of fancy color diamonds, small goods merchants and practically any other diamond trader will tell you that their clients – jewelry manufacturers – are after lower cost goods. Some want large items with lower colors, some smaller goods, whereas others are simply cutting on costs because their outlook is negative.

Every single indicator is proving that diamonds and diamond jewelry are in demand: record sales in the US, rising sales in China, India and Japan, the list goes on. At the same time, we see what is being sold – and for how much. The conclusion is that consumers are buying more for less.

Hong Kong Trade Show Bottom Line

Consumers are still interested in jewelry, but the figures are telling us that we are going through a phase of lower interest in diamond jewelry. This calls for heavy investment in marketing. Otherwise, demand will focus on the lower cost items that may generate more profit per item, but require a lot more sales to generate a worthwhile income. That is not what the diamond jewelry industry needs at this point.

The US State of the Jewelry Market Report
Indian Diamond Companies Improve Cash Flow

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