Pockets of recovery in the jewellery and gemstone industry are expected to gain further traction, thanks to the emergence of vaccines and improving consumer sentiment, but how soon can a full and impactful recovery take place?
This article first appeared in the JNA January/ February 2021 issue.
A year into a pandemic that decimated global businesses and livelihoods on an unprecedented scale, gradual improvements in buyer sentiment and a stronger response to the virus, supported by the development of vaccines, offer a glimmer of hope for many industries.
In the jewellery and gemstone sector, companies witnessed a slight rebound in consumer demand in the weeks leading up to the holiday season. Jewellery sales in major retail hubs Hong Kong and China proved promising after a gloomy start to 2020 – Hong Kong reported a narrowing rate of decrease beginning August while China breached negative territory in July, clocking in a 7.5 per cent increase in jewellery retail sales from a months-long decline.
The diamond sector is also on the road to recovery after coming to a halt during the early stages of the coronavirus pandemic. Diamond miners reported steady buying activities at their latest rough diamond auctions, driven by demand for diamond jewellery, which bolstered retail orders for polished goods in the midstream sector.
Jewellery exports were likewise a source of optimism. By September 2020, Hong Kong’s exports of jewellery, goldsmiths’ and silversmiths’ wares eased into single-digit albeit still-negative levels.
With global travel restrictions in place, a number of major international fairs – an important platform for jewellery and gemstone traders to do business, build networks and find new clients – have gone digital, offering online showrooms and sales channels in place of in-person meetings.
Auction houses likewise held online sales while webinars and Zoom conferences were done in lieu of live events and face-to-face interactions.
These, and the development of vaccines that can potentially end the coronavirus crisis, helped ease concerns over a full-blown recession, but a recent surge in new infections in major cities around the globe after initial advances in containing the virus could derail early recovery efforts in many industries, the jewellery sector included.
Hence a bigger question remains: How soon can the world return to normalcy? More so, what lies beyond Covid-19? Experts in the jewellery and gemstone industry sit down with JNA to examine the state of the trade as humanity gears up for a post-pandemic scenario.
A year of upheavals
According to coloured gemstone specialist Clement Sabbagh, who’s also president of the International Colored Gemstone Association (ICA), the gemstone trade relies heavily on traveling to do business.
At the height of the pandemic, all segments of the gemstone sector – mining, cutting, distribution, design, manufacturing, wholesale and retail – came to a standstill, resulting in reduced rough material.
The gem trade faced a trio of challenges – travel restrictions, which resulted in border closures and cancellation or postponement of major international trade fairs; sluggish consumer demand for luxury products; and reduced gemstone orders from jewellery manufacturers due to lacklustre retail business.
“Overall, businesses are still struggling to re-open, but we have observed a recovery from the second quarter of the year,” noted Sabbagh.
With travel bans and closure or reduced operating hours of restaurants, cinemas, shopping malls and other establishments, consumers awash with discretionary cash are spending locally, fueling domestic retail.
An interesting development is that buyers don’t simply shop online from the comfort of their homes anymore; they would also go to limited, appointment-only business transactions, especially for jewellery, added the ICA official.
Vaccines will play a significant role in the industry’s revival, but a full and meaningful recovery hinges upon the availability and equitable distribution of these vaccines so travel bans can be lifted. “At the trade level, we have always relied on one-on-one, onsite interactions at international fairs or client visits. The trade will only be able to resume operations once these in-person exchanges are made possible again,” remarked Sabbagh.
The diamond sector was among the hardest hit during the peak of the global outbreak. Yoram Dvash, president of World Federation of Diamond Bourses, said Covid-19 impaired the market’s ability to conduct person-to-person dealings, which is the crux of the diamond business.
The impact was all-encompassing, affecting the entire supply chain from mine to retail.
End consumers were likewise averse to buying luxury items such as jewellery. With rising Covid-19 cases and governments implementing stricter lockdown and social distancing policies, the jewellery retail sector around the world took a beating, stated Dvash.
Data from mining giant De Beers showed that its rough diamond sales in cycles 1 and 2 of 2020 reached US$545 million and US$355 million respectively, but by March – when the virus was beginning to wreak havoc on the global economy – De Beers cancelled its third auction and allowed Sightholders to defer up to 100 per cent of their allocations.
By comparison, the miner sold just US$56 million in the second quarter due to travel restrictions, weak consumer demand and diminished cutting and polishing capacity in the midstream.
De Beers only started making marked strides in rough diamond sales from August when auction results reached US$320 million as restrictions in various locations were eased and consumer sentiment began to pick up.
The miner achieved sales above US$400 million from three consecutive sights held in September to December, driven by steady demand for rough diamonds and diamond jewellery at the retail level, primarily in the US and China.
Amid de-stocking in the mid-market and the downstream segments, De Beers is looking to produce fewer diamonds in the next two years to avoid overstocking in the industry. Production outlook in 2021 was reduced to 33 million to 35 million carats from 34 million to 36 million carats; and 30 million to 33 million carats from 33 million to 35 million carats in 2022. Production guidance for 2023 is 30 million to 33 million carats.
The absence of international jewellery exhibitions meanwhile was especially detrimental to the pearl sector, according to Jonathan Cheng, director of Hong Kong-based Rio Pearl.
“The year 2020 has been very challenging for everyone. In terms of business, there were no opportunities such as large-scale fairs to help push sales. Traveling was also prohibited, which meant suppliers missed out on certain quarterly auctions,” he noted.
Pearl producers had an additional cause for concern. Apart from business woes, pearl farmers had to ensure that no local Covid-19 transmissions happen at their remote farms, most of which have no immediate access to medical assistance.
As with the rest of the business world, the pearl industry also took advantage of digital opportunities during the pandemic. Majority of pearl producers implemented hybrid auctions with a combination of online and offline elements. These events have so far proven to be practical and effective to some degree, given the circumstances, according to Cheng.
The great reboot
According to Lawrence Ma, president of the Diamond Federation of Hong Kong, China (DFHK), the industry may have seen the worst of the pandemic, with the biggest panic occurring in March and April 2020 when diamond prices plummeted by 15 to 20 per cent.
By the fourth quarter of 2020, prices started to pick up as consumption gradually resumed. Come October and November, prices in some areas reverted to their January and February levels, he added.
The reduced number of rough diamonds and tempered manufacturing activities also provided stability.
“Diamond miners were flexible in supplying rough rather than pushing goods in the market. This should help stabilise supply and prices,” explained Ma. “The polished diamond market already digested some overhanging goods, so it appears there will be healthier demand for diamonds in the coming months.”
China – as the first country to emerge from the coronavirus’ grip – has shown promising signs of economic comeback.
Data from the National Statistics Bureau of China showed that retail sales of gold, silver and jewellery returned to positive territory as early as July, increasing by 7.5 per cent after months of negative results. The sharpest drop was recorded in January to February at 41.1 per cent, but the figure has reverted to single-digit losses by May.
“People cannot travel but there’s pent-up demand in the market. The economy is down but demand did not fall off the cliff. From August onwards, it started to improve. People are spending locally, stimulating domestic consumption,” noted Ma. “We should see some recovery in the first quarter of 2021, given the current momentum and consumer sentiment. I’m banking on China fueling the consumption business.”
Some indications of green shoots were also recorded in the US. De Beers’ 2020 Diamond Insight Report, released in November 2020, showed that US consumers are already adapting to the new normal and that diamonds seem to have retained their sparkle amid the crisis.
According to the study, diamonds play an ever more significant role in the lives of consumers throughout the pandemic, with many purchasing diamonds as a symbol of resilience and strength, and to celebrate personal relationships.
Kent Wong, managing director of Hong Kong retailer Chow Tai Fook Jewellery Group Ltd, is upbeat about a recovery within the year on the back of measures to reinvigorate local economies as well as the development of vaccines.
“The situation will stablise following the rollout of vaccines in 2021, which favours a gradual recovery in the jewellery retail sector,” noted Wong.
In China, for instance, effective government policies aimed at stimulating local consumption will bode well for the jewellery retail business. This is a cause for optimism for Chow Tai Fook, who in November reported a 4.8 per cent upturn in revenues from its retail operations in China for the first half of 2020.
Business remains under pressure in Hong Kong and Macau but once borders are reopened, tourism and retail could gradually make progress. Unfortunately, borders remain closed and consumer sentiment dampened by the fourth wave of cases in Hong Kong.
“Yet, Chow Tai Fook will continue to embrace technology to keep our customers engaged and prepare for future recovery,” added Wong.
Platinum jewellery is another promising area. Zhenzhen Liu, director of Global Corporate Marketing at Platinum Guild International (PGI), said strong momentum in China from the second quarter of 2020 led the recovery in platinum jewellery. India, Japan and the US also followed suit.
“The recovery is driven by product innovation and emotional connection of platinum jewellery that captured high spenders, and a price gap between platinum and gold,” noted Liu. “Our strategic partners continue to report better sales with exciting new platinum products that reposition platinum for today’s younger consumers.”
Bridal jewellery demand is likewise on the rise amid delayed wedding ceremonies.
In terms of designs, PGI is expecting a strong interest in classic pieces that celebrate femininity. In 2021, jewellery designs are likely to focus on fashion, 50s icons and women empowerment.
Bolder, more assertive and adventurous designs could also make waves in 2021, according to PGI. Unisex styles with sharper contours and witty themes resonate more with younger consumers. Incorporating new materials like enamel also add colour and novelty, allowing more creative freedom. This will continue to be embraced by consumers in 2021.
A Nielsen study commissioned by PGI in November meanwhile showed that consumers in India, China and the US plan to purchase non-bridal jewellery within the next 12 months for themselves or as a gift.
“Consumers show a strong willingness to spend on products that celebrate important occasions and mark special moments,” revealed Liu. “Platinum is well-positioned in the trade as it is the rarest among precious metals and represents and reinforces heightened emotional connotations.”
ICA’s Sabbagh meanwhile expects stable demand for coloured gemstones in 2021, especially for Paraiba tourmalines from Brazil, spinel (red from Burma and cobalt from Vietnam), rubellite from Brazil and Nigeria, as well as tsavorite garnet from Kenya.
Padparadsha sapphires are likewise highly favoured but supply is tight, even of those from Mozambique and Nigeria – making it even rarer. “Jewellery designers should look for more available gemstones to create classic lines of gem-set suites. We expect that blue sapphires, aquamarines, topazes, garnets, opals, and a whole host of other gems will make their way into wave-making designer jewellery in 2021,” noted Sabbagh.
Cheng of Rio Pearl remarked that the crisis had peaked, and economic resurgence started to take shape as of the third and fourth quarters of 2020. Real and lasting recovery however will only happen once travel returns to normal and nations successfully contain the virus. “We are still far from a full recovery. The first half of 2021 will be the same as the second half of 2020. We can probably hope for some real changes to start happening by the second half of 2021 when borders are once again open and international travel is no longer impeded,” he noted.
In the pearl sector, most producers scaled back production in 2020 while some even shut down operations. There is no shortage of goods in the short term, but there may be fewer pearls in the market over the next two years, especially if business picks up again.
Ma of DFHK said while the pandemic created a great deal of panic during the first half of the year, there was no real evidence of a credit squeeze, adding that markets were relatively calm in terms of liquidity.
In addition, a reasonable gross domestic product growth of about 2 or 3 per cent and stable asset prices could support consumption, noted Ma. All these however depends on whether the vaccines are proven viable and effective, and how soon people can start traveling again. “How long will this pandemic drag out? I don’t have a crystal ball, so I can’t make predictions, but I think we have seen the worst. I believe in the vaccine and I’m optimistic about people wanting to celebrate life’s occasions with jewellery,” he continued.