After the tragedy in Japan, caused by a 9-point earthquake and tsunami on the 11th of March 2011, the global industry of jewelry and precious metals is attempting to assess the situation and make a decision on further action in the new environment. The opinions expressed are often diametrically opposed. In this article we shall try to outline the most probable short-term consequences of the natural disaster which hit Japan.
Decline in demand
A decline in demand appears to be one of the most obvious aftereffects. The damage caused by the earthquake is estimated at 16 to 25 trillion yen (200 to 312 billion U.S. dollars), Kyodo Tsushin reported citing the Japanese government. In the coming year the nation will focus on reconstruction of shattered communications, roads and entire settlements razed to the ground by the convulsion of nature. Jewelry does not belong to basic essentials (or even daily needs) and is often associated with some festive events where there is a cause for joy. However, under these circumstances, perhaps, the only occasion to rejoice will come if the Japanese will manage to curb the nuclear crisis that followed after the natural calamities.
U.S. jeweler Tiffany expects its sales in Japan to go down 15% this quarter. Tiffany had to temporarily close stores in the Kanto and Tohoku regions on the island of Honshu, which accounted for more than 50% of its sales in the country.
Italian jewelry house Bulgari also predicts a drop in sales in Japan, which is one of its strategic markets and in 2010 generated an 18-percent share in the company’s total revenue, Chief Executive Francesco Trapani told Reuters. Right now, Bulgari resumed work in 39 out of 40 of its stores in Japan.
Lower purchasing power of Japanese consumers may also be due to an expected weakening of the Japanese yen. When combining purchases at home and abroad, however, the Japanese are still considered the world's biggest buyers of luxury goods, Money Control, a web edition, said. However, in 2010 this was underpinned by a strong yen. If this currency goes weaker, consumer potency of Japanese tourists will also decline.
Divided opinions
By various estimates, Japan accounts for 11% to 20% of the global luxury market. The country shares the pedestal of superiority in this area with the United States and China. Maybe this year Japan will relinquish it in favor of India. Of course, manufacturers of jewelry and other items attributable to luxury are concerned that Japanese buyers will temporarily lose interest in "superfluities" in the face of national disaster.
“Japan is considered to be very important and the second largest polished market behind the U.S., therefore the situation in this market may directly affect our business. There are some risks which have not yet been perceived, and we expect deferred effect of the catastrophe,” Fyodor Andreev, President of ALROSA, told Reuters.
However, China believes that the disaster in Japan will have little impact on its economy, including the jewelry industry. This is evidenced by publications in the Chinese press and by the information obtained from contacts with Chinese fashion circles. In fact, given the uneasy relations between these countries and even inter-ethnic disaffection because of the historical events in their past, which is most notable among the older generation, it would be rather surprising if China recognized its dependence on the Japanese economy. Therefore, “yes, we are very sympathetic to Japan, but we have our own market, which is large and rapidly growing, so this disaster will not have much effect"- this is the quintessence of the Chinese position on this issue.
“It's probably a bit too early to comment in detail but our assessment is that there is likely to be minimal impact on global consumer demand for diamond jewellery. The Japanese market hasn't been growing with the same pace as other markets so, given the dynamics of growth elsewhere, we expect that any drop in demand in Japan would be picked up by China and India,” Lynette Gould, De Beers’ spokeswoman, said in reply to questions filed by journalists.
Slowdown in the jewelry industry
In 2011, Japan planned a number of important jewelry events and exhibitions and some of them are now in jeopardy. "In Tokyo, one international show is canceled after another. In the next two weeks, at stake will be the image of Japanese products painstakingly churned out by local manufacturers over the past thirty years - the fundamental basis of Japan's economic prosperity," Mark Zawadzki wrote for the Expert Magazine.
Among other things, he meant International Jewellery Kobe (IJK) scheduled for May 11-13 at the International Exhibition Hall in Kobe. The event organizers recently issued a formal appeal to the global jewelry industry participants to assure them that the show will be held as scheduled and there is no risk to joint since Kobe is 600 km from the nuclear power plant in the Fukushima Prefecture. For reference, the Chernobyl nuclear power plant is at the same distance from Moscow.
“Some 460 exhibitors confirmed their participation. They include pearl, diamond, and gemstone companies from 20 countries,” the organizers said.
Nevertheless, it is difficult to expect high yield from this exhibition, and some Western companies (for instance, LVMH and Richemont) even withdrew their personnel from the country until the situation calms down. Along with temporarily reduced operations by pace-setting jewelry brands in Japan, all this threatens to lower the activity index of the jewelry industry in the country as a whole.
Prices of precious metals
According to experts, gold prices will continue to rise due to events in Japan, since gold is viewed as a safe haven asset by investors who are particularly eager to use it in times of economic uncertainty.
"Some investors expect some of the Japanese insurance companies to start selling their dollar assets to raise money. Perhaps gold could be boosted as an alternative currency itself," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore. "In the short term, I think gold prices will head up due to a flight to safety and investors seeking out a safe haven."
Platinum prices have dwindled by over 2% due to reduced production in the automotive industry (Business Live), which is the main consumer of this metal in Japan.
”Platinum is falling all the way down because the global economy doesn't seem to perform well," said a dealer in Hong Kong. "There's a lot of mess around," he said, referring to the quake in Japan, deadly unrest in the Middle East and Europe's sovereign debt problem.
According to Reuters, Japan's total consumption, including jewelry and investment demand, was 1.16 million ounces, or 36 tonnes of platinum and 1.47 million ounces, or 46 tonnes of palladium (19 and 21 percent of global mine output) in 2010.
Jewellers to support Japan
The jewelry community is proactively involved in rallying support for Japan struck by the disaster. Many jewelry companies in the U.S. announced "Jewelry for Japan" actions to remit some part of their proceeds from jewelry sales to aid funds helping Japan. Some jewelers even released special collections carrying tsunami symbols and heart signs to express deep condolences to victims of the disaster.
According to the press service of U.S.-based Firenze Jewels, the company, together with the New York City 47th Street Business Improvement District, announced a relief effort aiding the victims of the earthquake and tsunami that struck Japan on March 11th. Approximately 2,600 businesses in the area donated $1 for every sale made during one week to the American Red Cross Japanese Earthquake Relief Fund. It would be good if these efforts were joined by other jewelry businesses for which Japan remains a most important source of benefit.
Dasha Platonova, Editor of the Rough&Polished Asian Bureau in Shanghai
