Sun, May 31, 2015 page13

• Chinese going abroad for diamonds

  • Bloomberg
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  Wealthy Chinese who made their country into the world’s second-biggest market for diamonds are now increasingly traveling abroad to buy the stones, at a time when ostentatious purchases are frowned upon at home.

  That is the view of Tiffany & Co, one of the biggest jewelry outlets, and De Beers, the world’s largest diamond producer, which said sales of the stones have slowed in China. Revenue from luxury jewelry worldwide is forecast to grow by 8 percent annually through 2018, according to Sanford C. Bernstein & Co London-based analyst Paul Gait.

  China has been the main engine of demand growth for the diamond industry, with sales expected to double in the next decade, according to private equity firm Bain & Co. Now, jewelers there are contending with an anti-graft campaign that has already dented sales of luxury goods, including premium cognac and high-end watches.

  “Patterns of buying by Chinese consumers are changing very fast,” said Bruce Cleaver, head of strategy and corporate affairs at De Beers, a unit of Anglo American PLC. “They travel more, and they buy a tremendous amount more than they used to outside of China.”

  China’s latest campaign against corruption does not “stop husbands and wives giving gifts to each other,” according to Cleaver. Instead it might have a chilling effect on those “who don’t want to be seen to be too ostentatious,” he said. The result: “a little less footfall in the tier one cities in our stores.”

  Other factors might also be involved. The weak euro makes vacation shopping in places like Paris, where De Beers has two outlets, much more attractive, he said.

  Meanwhile, Tiffany is seeing the same trend, according to vice president of investor relations Mark Aaron.

  “We continued to experience softness in Hong Kong and Macau, as we believe some Chinese tourists have been traveling to and shopping in other regions,” Aaron said during a conference call with reporters on Wednesday.

  De Beers’ retail stores are a joint venture with French luxury-goods company LVMH Moet Hennessy Louis Vuitton SE, and offer high-end jewelry that can fetch tens of thousands of dollars or more. There are six in China and 66 worldwide.

  “Chinese consumers who can afford to travel do take advantage of currency weakness to go and buy in Europe, where it’s much cheaper,” Cleaver said on Tuesday in an interview in New York.

  The shift is coming in a challenging moment for the industry.

  Tiffany on Wednesday said that same-store sales at the jewelry chain globally fell 1 percent in the first quarter. At the same time, the price paid by buyers for polished diamonds fell by 8.1 percent this year, according to an index from Polishedprices.com.

  Prices for rough diamonds, the uncut stones bought by jewelry makers, have tumbled 13 percent in the past year.

  De Beers, which mines in southern Africa and Canada, failed to sell 30 percent of the rough diamonds at its March sale, according to industry publication Rapaport. Last month, it cut its output target for this year to between 30 million and 32 million carats, from as much as 34 million carats.

  “China is the main driver of growth for diamond jewelers,” Gait said in an April 20 note. “The size of the middle and affluent classes in the country is forecast to grow considerably by the end of the decade.”
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