Diamond products face price hikes

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Last updated at: (Beijing Time) Monday, March 01, 2004

Diamond products face price hikes

Finished diamonds are facing a price hike in two or three months boosted by a year-long costs surge and supply drop in raw materials, according to diamond processing firms.

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Dear diamonds get even dearer

Finished diamonds are facing a price hike in two or three months boosted by a year-long costs surge and supply drop in raw materials, according to diamond processing firms.

"Because of great demand for diamonds all over the world, the raw material providers raised prices while cutting supply, which created a dilemma for most Chinese diamond processing companies whose profit margins have been further lowered and are short of raw materials," said China Diamond Manufacturers' Association Chairman Guo Zhiyue.

China has been the world's second-largest diamond manufacturing centre, next to India, with more than 22,000 workers processing 3 million karats worth of diamonds a year, Guo told a diamond forum at the Second China International Gold, Jewellry and Gem Fair at the Shenzhen High-tech Fair Centre, which ran through February 25-28.

An expected price hike for finished diamonds, which are always lagging behind the pricing fluctuation of raw materials, may ease the situation, Guo said.

The prices for the raw materials of a star diamond, which weighs 0.02-0.03 karats, rose roughly by half from some US$40 at the end of 2002 to the current price of more than US$60 each despite only a mild product price increase, he said.

"Compared with raw material providers and gem retailers, the profit margins for diamond processing firms have been squeezed to about 5-8 per cent, while the other two could achieve at least 10-20 per cent or even higher," Guo noted.

David Pong, managing director of Hong Kong-based Wing Hang Diamond, which has two diamond cutting works in South China's Guangdong Province, said that operations are becoming difficult now.

"The raw material providers are reluctant to sell as they are still waiting for more handsome prices, but we are also reluctant to process the products because the margin is too thin, and sometimes we are even losing money," said Pong.

"We could only give our long-established clients half of their orders. And to many new clients, I had to say sorry to them."

But he is still optimistic about the future because the "market has its rules."

Industry representatives and government officials have discussed how to further cut taxes so that their competitive edge in the global market could be sharpened.

Taxes for diamond processing companies in China to import diamond raw materials have been cut by some 33 per cent, including tariffs, value-added taxes and consumption taxes, to the current figure of 17 per cent from when the Shanghai Diamond Exchange was set up in mid-2000.

"The government is considering making some adjustments in tax policy for the diamond industry, but we have not been informed of the details and timetable," Shanghai Diamond Exchange Managing Director Lin Qiang told the forum.

China has earned a solid reputation in the world's diamond processing circles for its leading techniques in cutting and polishing star diamonds, Guo said. But the Chinese industry is not as strong at producing raw diamond materials, as compared with sawable raw materials which are more common and much easier to cut. That has greatly limited the growth of the industry, he added.

Of the 22,000 workers in Chinese diamond processing companies, over half are working in the country's manufacturing bases in Guangdong Province, about 8,000 are in East China's Shandong Province and another 1,000 are in Shanghai.

About 70-80 per cent of the companies are overseas-funded, including investment from Hong Kong, Macao and Taiwan, according to figures from the association.

Some US$1 billion worth of finished diamonds were exported last year, compared with US$700 million to US$800 million a year earlier, Guo said.

Diamond exports are expected to grow by about 20 per cent each year in the near future, he predicted.

Source: China Daily

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