China's diamond demand shifts to smaller stones
Heavy investment in high-end gems pushes regular buyers downstream
RURIKA IMAHASHI, Nikkei staff writer
TOKYO -- Low interest rates and changing preferences in China are shifting the landscape of the global diamond market.
Chinese buyers are tapping into the market for smaller diamonds. This is because the high-end market has seen an influx of investment money chasing higher returns -- any returns -- amid a global trend of ultralow interest rates.
As a result, average Chinese have been pushed out of the higher-end market and are turning to more affordable gems en masse. Prices of low-grade stones have gone up, adding pressure on engagement-ring seekers in other countries such as Japan.
Diamonds account for 70% of the jewelry sector and China is the world's largest consumer.
In 2014 and 2015, jewelry flew off the shelves in China as the economy grew at a brisk clip. Diamonds of at least 0.3-0.5 carat were popular in the bridal market and elsewhere. D-color diamonds, the closest to colorless, sold well.
The value of diamonds is determined by their weight, color and clarity. Most diamonds have tiny imperfections called inclusions. The fewer and less visible the inclusions, the higher the clarity and price.
More recently, however, Chinese consumers are opting for lower-grade diamonds, traditionally popular in neighboring Japan. Consumers cannot keep up with institutional money in the high-end market as economic growth slows, and the government's anti-corruption campaign is believed to have squeezed demand for gifts and bribes.
"Now we have to compete with Chinese buyers, who used to go for more expensive diamonds," said a representative of the Tokyo-based jewelry maker Kuwayama.
Japanese consumers typically settle for relatively affordable diamonds that are 0.15-0.25 carat, rated F or G for color, and VVS1 or VVS2 clarity. The prices of 0.2-carat, SI-grade or better diamonds -- the benchmark for small diamonds -- are now in the range of 60,000-80,000 yen per carat, up roughly 10% over the past year.
At the top end of the market, meanwhile, prices of large and rare diamonds have been rising due to inflows of money for investment purposes. To have value as an investment asset, diamonds must generally be at least 3 carats.
In the summer of 2017, a 2.27-carat blue diamond came up for auction in Japan, with a man at the auction site bidding against a caller from overseas. The stone eventually went for 225 million yen ($2.12 million), a record for a jewel in Japan.
The price of 0.015-carat rare pink diamonds is between 200,000 yen and 250,000 yen, about double the price a decade ago.
"Investors may have poured surplus money into diamonds as central banks around the world continue to keep interest rates extremely low," said Nobuyuki Harada, director at Suwa & Son, a Tokyo-based jewelry trader.
On the other hand, prices of medium-size diamonds with higher color and clarity grades have been falling, as shown by the prices listed in Rapaport, a U.S. professional journal for global diamond buyers.