Waiting for a Flinch in Hong Kong

The Hong Kong show is still running, but judging from the first few days, it's not the horrible show that many feared it might be. Clearly, it's not as good as the March show, yet the deepest fears many wholesale diamond traders had prior to the show did not materialize.

The polished offered at the show was made from some very expensive rough, bought during the spike in prices over the past few months, and there are more goods still in various stages of polishing that are manufactured from even pricier rough still to come through the pipeline. On top of that, the depreciating U.S. dollar is pushing up the cost of manufacturing even further. 

Manufacturers want to protect their margins and are therefore insisting on offering their loose diamonds at prices that reflect their increased costs. In a narrow-margin industry, that makes sense. 

The issue is that prices of polished diamonds went far up reaching record highs, placing burdensome inflationary pressure on jewelry makers and retailers trying to maintain their price points. To make matters worse, these buyers also feel that they have already budged and "compromised" enough on the price.

This puts the two sides at odds at the show. Wholesalers from Antwerp and Israel are sticking steadfastly by their prices. So are the large Indian manufacturers. The problem is that since early August, traders are expressing liquidity concerns, and the buyers smell an opportunity. Unless they have an order they need to fulfill quickly, they are largely holding off, sticking by their demand for lower prices.

I don't want to compare this to High Noon, as there is no bad guy in this situation, but the two sides are standing across from each other, looking deep into the other's eyes, examining each other, waiting to see who will flinch first. 

Often, it is retailers that are absorbing price changes. They have wider margins and difficulty passing rising costs to consumers, as many IDEX Online Research materials show. 

The September Hong Kong show is the diamond industry's last important international trade fair before for the November-December holiday season. The prices set here now will influence prices for the rest of the year. Will Indian traders, in need of more turnover, blink; or will Chinese and European buyers back down to ensure they have the goods they need? Healthy commercialism will probably prevail. Polished prices will soften a touch more, and buyers will place their orders in time.

Enjoy your weekend and Shana Tova