Hong Kong Show Reflects Slow Chinese Demand

RAPAPORT... The timing of the September Hong Kong Jewellery & GemFair was unfortunate, coming amid a wave of anti-government demonstrations inthe city. But for many participants, the political tensions were masking thebigger issue: Chinese demand has slowed, compounding the wider problemsin the diamond industry."The protests are an excuse [for not attending], but reallythe market is not good," said the directorof a large Indian diamond manufacturer on condition of anonymity.The trade war, the depreciation of the Chinese yuan currency,and high gold prices have reduced the buying power of companies and consumersin the country, exhibitors noted at the fair, which ended Sunday. Tradecustomers are mostly unwilling to buy for stock or make advance bulk orders, asthey want to keep their inventory down. Some Chinese jewelers believe they canget better deals if they wait for polished prices to fall further."Retailers have a lotof polished goods that haven't been sold," a Hong Kong-based supplier noted atthe show last week. "They were buying at a consistent pace, but the consumptionlevel has gone down. They used to buy bigger parcels for the long term, but nowthey're working three months at a time." That change has occurred since May, headded.Shift to lower qualitiesConsumers are seeking cheaper jewelry items, observedLawrence Ma, president of the Diamond Federation of Hong Kong, China. "Themarket has adjusted to a level that represents the [current] supply anddemand," he explained.On a positive note, growing interest in those lower-priceditems - such as 0.30- to 0.50-carat diamonds with SI clarity - could boost thetrade as shortages start appearing, he added. "Commercial goods have become very popular in China," Masaid. "In the last two to three months, the supply of rough has decreased,which is a healthy sign. We're already seeing certain sizes and qualities ofgoods might be in demand. We might find we do not have enough of these goods." Lower footfall, slower salesSales at the show were focused on commercial goods, with stable demand for 1- to 1.50-carat, G to I, VS2 to SI2 diamonds. The market for 0.30- and 0.40-carat stones was weak, but showed signs of stabilizing. Demand for diamonds weighing 3 carats and higher was sluggish, especially in better colors.Fewer exhibitors and buyers came because of the protests andthe market weakness. Trading and traffic were slow, with suppliers observing adrop in the number of Chinese clients attending. But the event still exceededmany exhibitors' extremely low expectations, as the buyers who turned up wereserious ones."The show has been better than expected for us, because wedidn't expect many people to come," said Chetan Shah of R A Gem Centre, theHong Kong unit of Indian manufacturer S. Vinodkumar Diamonds. "Whoever [came toour booth] were people who really wanted to buy diamonds. They were looking forgoods at an attractive price, and if we have the goods, they will buy." Sensing an improvementWhile buyers were mainly cautious, a minority of exhibitorssaid clients were aiming to take advantage of the relatively low polishedprices to stock up on merchandise. "People have come to find cheap goods because prices aredown," saidAashay Bhansali, a trader at Antwerp-based diamond supplier Veera Dimon."Prices have fallen so much, and they don't think there will be another pricefall." Diamantaires expressed some optimism that the upcoming holidayswould boost Chinese demand, beginning with Golden Week, which starts October 1.Retailers have slowly been working down their inventories by reducingpurchases, and will soon be ready to buy again, another Antwerp-based companyexecutive predicted. Golden Week, Christmas and Chinese New Year all offeropportunities for local diamond sales, he noted. "They haven't bought much over the last few months, so I'msure demand will come back," he explained. "They can't keep on like that."Preparingfor the future of trade showsAmidthe sluggish market, companies are rethinking how they approach the expensivebusiness of trade shows.Mostexhibitors who spoke to Rapaport News intended to return to the HongKong fairs next year. They hold the event in high regard compared with some ofthe other items on the trade-show calendar. It presents fewer visa issues thanJCK Las Vegas, is more affordable than Baselworld, and takes place in one ofthe world's most open trading hubs. "HongKong is a...center and a feeding point for the whole Far East," said Michel Kleinof SDI, a New York-based polished supplier. "There are lots of countries [inthe region] where you can't bring [goods] in because of taxes. Hong Kong isalways a show of surprises, which you don't have in the States. There arepeople from literally every place." Informawill rebrand next year's show as Jewellery & Gem World Hong Kong, reflectingthe international appeal. The event is scheduled to run from September 13 to 17at the AsiaWorld-Expo, and from September 15 to 19 at the Hong Kong Convention& Exhibition Centre. However,exhibitors still questioned whether the show was as effective for them as it hadbeen in the past, because buyers can carry out research online and makepurchases without meeting the seller in person. "Showsare not what they used to be," said a director of an Antwerp-based companyexhibiting in the diamond hall's Belgian pavilion. "The show formula has toreinvent itself, but I haven't found a way to do it yet." Image: The Belgian diamond pavilion at the Hong Kong show. (Informa Markets)