11 January 2019
The year 2018 proved challenging to the gemstone and jewellery industry by most accounts but it also served as a catalyst for change and opportunities. Macroeconomic uncertainties such as Brexit, the US-China trade row, devaluation of the renminbi and India’s monetary crisis have all had an adverse impact on global businesses, the jewellery trade included. Last year however also saw significant leaps in various aspects of the sector at large – the unrelenting growth of e-commerce; technological advancements such as the blockchain system and other traceability initiatives; and the rise of a more sophisticated, information-hungry clientele that disrupted norms and brought about unprecedented changes in the way jewellers do business.
The new US Federal Trade Commission (FTC) jewellery guides, which remains a contentious subject, as well as diamond giant De Beers Group’s decision to enter the lab-grown diamond jewellery segment were likewise among the top stories of 2018.
Amid a plethora of developments and setbacks, the industry remains implacable in finding more solid footing in the modern business world.
Diamond industry players are upbeat about prospects this year, with the US and China providing the impetus for growth. The coloured gemstone sector meanwhile is counting on stable operations in the key markets of Asia, the US and Europe, with perennial favourites such as blue and red gems leading the business. The jewellery sector, for its part, is taking a cautiously optimistic stance in light of the trade war but remains hopeful that improved market sentiment and rising tourist shopping activity will keep the market afloat.
A year of challenges
Ernie Blom, president of the World Federation of Diamond Bourses (WFDB), pointed out bright spots in the diamond sector last year, including improved polished diamond exports in the critical markets of Belgium and India as of October 2018.
Global demand for diamond jewellery also retained its sparkle, with De Beers reporting record sales of US$82 billion in 2017, driven by millennials.
De Beers’ launch of its lab-grown diamond jewellery line, Lightbox, was likewise seen as a positive development since it is expected to set a price benchmark for lab-grown diamonds, which in Lightbox’s case is US$800 a carat.
In a separate interview, Boaz Moldawsky, chairman of the Israel Diamond Institute (IDI), described the year 2018 as “satisfactory.” Compared to 2017, the diamond sector witnessed various improvements, particularly in the use of e-commerce. In fact, IDI last year signed an agreement with Alibaba to enable Israeli diamond companies to sell B2B and B2C online.
In terms of challenges, Blom lamented the drop in global lending to the midstream sector to about US$13 billion in 2017 from US$16 billion in 2013. The figure is seen to further dip below US$11 billion in the next couple of years. “This shows a shrinking of business activity by the diamond trade. We must continue to liaise with banks and financial institutions to show them that the diamond trade is an integral part of the lives of hundreds of millions of people across the globe who mark treasured moments with a piece of diamond jewellery,” noted Blom.
Another big challenge, the FTC revised jewellery guides, was highly contested by industry organisations, with the WFDB saying that the FTC “went too far” by removing “synthetic” from a list of words to describe laboratory-grown diamonds. The move, according to Blom, created more confusion.
The market is also seemingly veering away from melee diamonds due to fears of undisclosed mixing of natural and lab-grown stones. Some jewellery manufacturers also prefer using higher-quality lab-made melee instead of lesser-quality diamonds that cost the same, revealed Blom. Moldawsky echoed this sentiment, adding that the trade can expect an increased presence of lab-created diamonds in the market after the launch of Lightbox. “The main challenge is to distinguish between natural and lab-grown diamonds, which are different products, and to educate the consumer about the differences,” he noted.
Growth was more subdued for the coloured gemstone sector owing to global uncertainties, according to Clement Sabbagh, president of the International Colored Gemstone Association (ICA).
Last year saw a more cautious business sentiment, with the industry facing setbacks caused by China’s stricter cross-border cash restrictions and the monetary crisis in India.
A few markets, meanwhile, performed positively due to consumers becoming more knowledgeable about coloured gemstones.
The big three – emeralds, rubies and sapphires – sold steadily throughout the year, weathering global economic challenges. Emeralds, along with blue and Padparadscha sapphires; the ever-popular Paraiba tourmaline from Mozambique, spinels and garnets also continue to make headways in the market.
Challenges however also abound. Sabbagh cited the need for the industry to communicate better with customers and standardise trade terminologies.
“If we can do this as an industry sector, we could pass that knowledge on to the consumer. Educating the consumer leads to greater confidence, and consequently, more sales of coloured gemstones,” remarked Sabbagh.
Consumer education is also the primary concern of pearl dealers, according to Yoshihiro Shimizu, chairman of the Japan Pearl Exporters' Association. This is why the group is focusing on promoting the ethereal allure of pearls to the modern buyer.
The pearl business however is experiencing a slowdown as a result of the US-China trade row. At the September Hong Kong Jewellery & Gem Show – which serves as a yardstick to gauge the industry’s performance in the coming year – Japanese pearl traders observed less buying activity from the usually robust Chinese market.
“Buyers are price conscious unlike before when they would purchase pearls from top to bottom range. Better-quality Japanese Akoya and South Sea pearls are moving but clients have a price ceiling. Only a limited number want top-grade pearls,” disclosed Shimizu.
Demand for Tahitian pearls meanwhile softened, again as a result of a lacklustre Chinese market.
Trade war and buyer sentiment
With uncertainties arising from the US-China trade war and the devaluation of the RMB, jewellery retailers in Hong Kong are “cautiously optimistic” about prospects in 2019 but a truce, reached after discussions at the G20 summit in Buenos Aires on December 1, is seen to provide temporary relief.
According to Stelian Mataj, vice president of the investment team at China Industrial Securities International Brokerage Ltd, the RMB has depreciated by 5.36 percent since the start of the year, hovering around RMB 6.88 to RMB 6.90 per US dollar as of early December. “The truce would bolster the RMB’s strength as it could alleviate any downward pressure on the RMB resulting from the trade war. But this trend is unlikely to continue as China and the US are still far from reaching a common ground,” noted Mataj.
Winston Chow, vice president of Chow Sang Sang Jewellery Company Ltd, said the jewellery retail sector is highly anticipating further developments on the trade feud, which already made a significant dent on the RMB, and local and tourist spending.
But taking into account gains made in the first three quarters of 2018, the company official expressed confidence that a 10 percent increase in total sales would have been achieved by yearend, ushering in a promising 2019.
Chow said a boost in Chinese tourist spending, coupled with recovering market sentiment, was a much-needed stimulus for growth, resulting in an average of 15 percent increase in sales in the first three quarters of 2018.
To retain growth, Chow said the group will engage younger buyers by offering products that resonate with them in terms of personalisation and affordability.
Hong Kong retailer Chow Tai Fook Jewellery Group Ltd also recorded solid improvements in half-year sales, citing sturdy consumer demand and higher Chinese tourist arrivals in Hong Kong.
A slowdown is however expected on account of the trade war and foreign exchange fluctuations. To counter such potential headwinds, Chow Tai Fook said it will strive to boost customer experience through a multi-brand strategy and continued investments in technology.
Jewellery manufacturers, meanwhile, want to diversify their businesses to sustain growth. Adam Lau, managing director of Able Jewelry Mfg Ltd, said he will focus on markets other than the US, adding that Hong Kong companies are likely to ride the tide owing to gradually improving economic fundamentals.
Victor Chan, chairman of Continental Jewellery Mfg (Ltd), acknowledged difficulties that manufacturers could face in 2019 but agreed with Lau that looking for new markets could lessen the blow of any major economic upheaval. The company, he said, will continue to offer classic products that never go out of style to motivate sales.
The road ahead
The year 2019 will see the US market leading the business, with China and India providing critical support to the global gemstone and jewellery industry, according to Blom.
The diamond market is currently looking for an eclectic variety of goods, he added. In China, there is growing interest in better-quality diamonds while in the US, low to high-grade diamonds are in demand.
Moldawsky reiterated this upbeat outlook, noting that the diamond business will see continued moderate growth. “The US will undoubtedly remain the largest market for diamonds and diamond jewellery, and we see encouraging signs of growth in this market. China will continue to be an important target too,” he disclosed.
He also said buyers have become more partial to fancy colour diamonds and large and important stones – a trend that is likely to continue. In Israel, the focus is on white and fancy colour diamonds in large sizes.
For coloured gems, Sabbagh is banking on stable business in Asia, the US and Europe. Classic colours led by rubies, rubellites and spinels; blue sapphires, tanzanite stones and cobalt coloured spinels; and emeralds, garnets, peridots and jade are seen to attract the most interest in the market. Other beryls such as pink morganites and slightly greenish-blue aquamarines also have a solid following. Australian opal exporters meanwhile anticipate strong demand for black, high-quality light and boulder opals.
Growth will likely be led by the US, followed by China, revealed Sabbagh.
Call for transparency
At the forefront of the diamond business in the modern world is the incessant call transparency, traceability and responsible sourcing. Sabbagh called for the need to continuously promote responsible sourcing of gemstones and fair trade to effectively captivate a younger generation of buyers who value individuality, rectitude and honesty.
Transparency and consumer confidence are “a major emphasis” in the global diamond industry today, remarked Moldawsky.
“It is clear that this is now a priority for the entire industry and it will influence the way we do business now and into the future,” he added.
Blom further commented that providing consumers a more transparent and traceable supply chain has become an industry standard and the diamond trade “must operate according to these concepts” to retain consumer confidence. “Without the strong belief among end-buyers that we work in an honest and transparent manner and with complete integrity, the diamond industry will find things very difficult,” he noted.