The lure of a precious market LUXURY JEWELLERY

With two springtimes on the lunar calendar this year, the unusually long Year of the Dog is an valentines day jewelry time to get married. Occurring every five years, a “double-spring” is supposed to bring twice the happiness for newlyweds. Whether or not this traditional wisdom becomes reality for the couple, a boom in weddings is spelling good fortune for some.

“This has been an exceptionally good year for us. I wish every year was a double-spring year,” says Zhang Ming, a manager at Donghua Diamond Jewellery, a Shanghai-based retail chain.

One pleasing trend for Ms Zhang is that moreand more Chinese couples now celebrate their weddings with diamonds. In Shanghai, China’s biggest market for the precious stone, three out of five brides receive a diamond ring when they say “I do”.

China’s diamond jewellery market grew by 8 per cent in the first half of this year, led by 10 per cent growth in wedding jewellery, according to the Diamond Trading Company (DTC), the sales division of De Beers, the world’s largest producer of uncut diamonds. But the market is also getting competitive. Boosted by -foreign jewellery retailers, the number of jewellery shops has grown even faster – a 17 per cent increase in the first six months of 2006.

Since China’s economy took off a few years ago, international luxury brands – led by fashion and leather goods retailers – have been expanding aggressively into the mainland – a country full of brand lovers with a tradition of giving and receiving rich gifts.

The presence of luxury jewellery remains small in comparison with iconic branded goods such as tiffany necklaces watches or Louis Vuitton handbags, which are very popular with Chinese consumers. Yet the country is fast turning into a new -battleground for international jewellery groups.

Cartier, the French chain, already operates boutiques in nine Chinese cities. New York-based Tiffany & Co opened its third store in China a few months ago and is scheduled to open another in Shanghai later this year. Italy’s Bulgari, which entered China in 2003 with four outlets, recently expanded its flagship store in Shanghai.

Even fashion brands such as Gucci and Christian Dior are tapping China’s jewellery market.

Chaumet, the French chain that was Napoleon’s jeweller, is the latest retailer that is planning to conquer China.

Acquired by the LVMH group in 2001, Chaumet has switched its focus from the US to Asia in the last few years. After turning Japan into its biggest market inthe region, contributingone-third of the group’s -revenue, Chaumet is now hoping to repeat its success in mainland China.

“We see a lot of similarities between the Japanese and the Chinese markets. People like jewellery, like brands and have a strong gift culture. There is no question why we should not succeed in China,” says Thierry Fritsch, Chaumet’s president.

But Mr Fritsch has faced a problem. In all his meetings with marketing companies or business partners in China over the last two years, the first question has always been: “Where is your store in Hong Kong?”

“I realised for us to be successful in China we have to have an impressive outlet in Hong Kong,” says Mr Fritsch.

After two years of searches and waiting, Chaumet finally won a lease to open its first shop in Hong Kong this month. The tiffany accessories – Chaumet’s largest worldwide – is its platform for China.

“We are now in talks with local partners to open one store in Beijing and one in Shanghai in 2007. But, of course, this will depend a lot on if we can find good locations,” says Mr Fritsch.

While opening a store in China is his first task, Mr Fritsch’s bigger challenge is to find a niche for Chaumet in general and branded -jewellery in China in particular.

Globally, branded jewellery accounts for less than one-fifth of the Dollars 100bn jewellery market. In China, the percentage is estimated to be much smaller, although brands, led by those from Hong Kong, are making slow inroads into the mainland.

“We are beginning to see brands and collections in China. Go back three years, you see the same ring, the same ring and the same ring. Now you see more designs and different quality,” says David Lamb, worldwide marketing director for DTC.

But as many Chinese are still first-time diamond -shoppers, buying expensive jewellery is often a family tiffany keys.

“In China, the local chain is doing very well because people like to take their family with them. You won’t travel to an A(-list) city to buy jewellery. You will be in Nanjing or Chengdu where your family members can join you,” says Mr Lamb.

Willowcreek Gifts offers a local alternative to jewelry, unique gifts

Editor’s note: This is one in a weekly series of profiles on locally owned and operated businesses in Southern Oregon.

What do you do and how long have you been doing it? (Susan speaking) We have valentines day jewelry, unique gifts, home and garden decor in our garden out back, and home decor inside. We have fresh flower bunches, silk flowers and French body and bath as well as baby gifts. We’ve been doing this for nine years.

How long have you lived in the Rogue Valley? Both of us were born here. My mom went to Crater High School, I went to Crater and my son and daughter (Jennifer) all went to Crater. So we’ve been here three generations.

What inspired you to go into this line of work? My grandfather always had stores. He had one in Prospect and later in Woodland Heights off Columbus Avenue in Medford. I remember helping him with the store when I was little. I’d stand on the stool and help the customers; that’s how I learned to make change. It just gets in your blood.

What decision or action would you change if you could do it again? When we started, we were out in Phoenix at the Shoppes at Exit 24, it was still an outlet market and booming. It was thriving at first and then it went downhill. The timing for being there wasn’t good. We then moved out to Jacksonville to be closer to home. That was just when the economy turned bad.

What’s the toughest business decision you’ve made? It’s whether to keep hanging in there. We’re not doing this to make any money right now. We have so many loyal customers that just come in and tell us this is there favorite spot and don’t close. We depend a lot on local people, that’s why we try hard to cater to local people with birthday and necklaces gifts. We try to find the best prices on unique and different things. We carry different things by both local artists and around the world. We even work with a village in Nepal, where ladies make hand-made winter caps. We try to work with fair trade and help anywhere we can.

Who are your competitors? We used to go to market, buy items and come home and sell it at a fair price. But the big box stores like T.J. Maxx and Ross and even Real Deals buy at huge quantities and then discount it. What we’ve been trying to do is have a boutique look without boutique prices. There are always other gift stores. One hope is that people would discover the stores on the side streets; there’s more to Jacksonville than just California Street.

What are your goals? We moved into this location last July, and before that we were on Fifth Street. We want to see the economy come back to where people can come in — not to over-indulge, but to find nice gifts for their friends and families. There is only so much disposable income, we don’t provide necessities, we supply retail therapy. We want to be comfortable financially like we were five years ago. We see Jacksonville becoming a wonderful destination long-term. Basically, we’re trying to find our niche in the community.

What training or education did you need? My daughter has a background in visual merchandising; she was a manager at Pier 1 Imports. I previously was a hairdresser for years and had a flower and gift shop in the early 1980s. I had the Basket Place in Poplar Square for about four years. I learned that retail is hard and it changes and you have to roll with the trends. We’ve learned that here — that you have to keep it fresh.

What’s your advice for budding entrepreneurs? It’s not something to take lightly and it’s not a big money-silver bangles. It’s harder than it looks. We’re here seven days a week, no paid holidays — it’s just hard. People have to absolutely go into it with their eyes open. They need to have a five-year plan.

A Valentine’s Note

As Valentine’s Day nears, heart-shaped chocolates, cards with inscriptions of “I love you,” and bottles of champagne wrapped in red and white foil line the store shelves and bombard shoppers with subliminal messages that if you don’t have a lover, you’re missing out.

For sure, to be wanted and viewed as sexually attractive are valued qualities in America — where beautiful people move to Hollywood and movie stars become presidents. And in a nation invariably obsessed with sex — where pop magazines, television and music titillate and tantalize — not being seen as sexy is equivalent to living a life of loneliness and boredom, an existence devoid of power and even happiness.

So it is not surprising that many Asian American men are feeling frustrated that Asian American valentine’s day jewelry gifts tend to date outside their race much more than men do, creating a perception that they are not wanted by anyone, not even fellow Asian Americans.

For Asian American men, observing such a disparity brings to mind the disparaging media images of Asian men that began a century ago and persist today — images that portray them as bucked-toothed nerds and karate-chopping, desexualized fighting machines.

Such caricatures have damaged the reputation of Asian American males as anything but virile lovers, and reinforced racist stereotypes that have more or less stripped them of their masculinity.

The stereotypes have been constantly present throughout the media’s history, from the branding of early Chinese and Japanese immigrants as a “yellow peril,” to the visions of the sinister Dr. Fu Manchu, to the characterizing of Asian men as impotent buffoons. And in the 1960s, that stereotype reached an all-time low when Mickey Rooney played Audrey Hepburn’s buck-toothed and grossly-caricatured landlord in the movie Breakfast at Tiffany’s.

It’s doubtful that those images are changing, even as Asian and Asian American male actors rise to stardom in Hollywood.

For example, international superstar Chow Yun-Fat, though tall, dark and handsome by many standards, remains limited primarily to chaste, yet bad-boy, shoot ‘em up roles. Though he plays a Thai monarch in his latest movie Anna and the King, Chow’s previous U.S. movie — The Replacement Killers — had him playing opposite Hollywood’s shapely Aphrodite, Mira Sorvino, as an asexual, gun-slinging fighter.

Apparently incapable of making any sexual advances to Sorvino’s character, the closest Chow comes to a “sin of the flesh” ends up as nothing more than a simple hug and an “I will miss you” — a pathetic consummation to their relationship.

Had anyone else played the leading man — Mel Gibson, Harrison Ford, Pierce Brosnan — a fornication scene would have been an ironclad clause in their contracts. Similar examples of apparent Asian male chastity are endless.

Many Asian American women seem to have been convinced by these notions, choosing to date and “outmarry” white men at a lopsided rate. In California, 7.7 percent of API males were married to whites, compared to 16.2 percent of the women, according to the 1990 Census.

And particularly in Asia, where the standard of beauty is Western, and Americana is exported through big-budget silver bracelets DiCaprio blockbusters, those images are equally, if not more, harmful to the Asian American psyche when newly arrived immigrants insist on dating whites only.

That’s not to say that interracial dating or marriage is unhealthy. Indeed, a multiethnic society like that of the United States should be integrated in more ways than a classroom or an office. It is unhealthy, however, when media stereotypes drive coupling patterns, convincing Asian American men that they are not “good” enough to date white women, and conditioning Asian American women to favor white men.

But stereotypes of Asian men are only one factor in Asian American-white relationship patterns. Other factors include stereotypes of Asian females — also quite well-known and widespread (look up “Asian” on the Internet).

Therefore, it behooves all parties — Asian American men and woman, white men and women — to evaluate their susceptibility to media stereotypes and ask themselves how sincerely they view themselves and each other.

With this in mind, have a joyous and blissful Valentine’s Day.

Area teens have passion for fashion

Brandi Beutler’s back-to-school shopping goal is simple: Find cute clothes at bargain prices.

On a recent trip to the Lewiston Center Mall, she and three other 16-year-olds said the best school clothes are a perfect combination of style, comfort and affordability, and fashion is subjective.

“I go for whatever is a reasonable price and cute,” said Brandi, daughter of Michele and Bill Valentine’s Day gift.

Tiffany Ho, daughter of Linda Do and James Ho of Clarkston, said she prefers the “urban look” of jeans tucked into boots, long cardigans and long necklaces.

“If I feel like making a bold move, I wear something different than what everyone else is wearing,” Tiffany said. “One time I wore leather leggings to school with pumps. I got many different responses. My English teacher liked it a lot. I think I wore them twice.”

Kids who just want to blend into the crowd can play it safe with jeans and T-shirts, but it takes a bit more confidence to break out of the box. “As long as you don’t care what other people think, you can pull it off,” Brandi said. “I have pink and purple pants. Some people looked at me kind of funny when I wore them. I like them, so it doesn’t really matter.”

Skye Leighton, son of Michelle and Jesse Leighton of Clarkston, said he enjoys dressing nice for school on game days. “I like ties that are interesting but professional, not crazy like a clown tie. I like a sweater over a shirt and tie. Your belt, socks and shoes have to match.”

Accessories are important, said Lexee Hoffman, daughter of Bev and Mel Hoffman of valentine’s day jewelry gifts.

“Bracelets are big,” said the high school junior, who was wearing five on one of her wrists.

“And prescription glasses are in style,” Skye added.

As for shoes, flip flops are still popular, along with sandals and sport-inspired footwear, such as Converse, the teens said.

“I bought five colors of the same style of sandals,” Brandi said. “They were like $6, so it was a good deal.”

Most schools have dress codes, but the rules are rarely enforced, the kids said. For example, shorts are supposed to be fingertip length and tank tops should have thick straps.

If it’s hot on the first day of school, the girls plan to wear shorts, tank tops and sandals. “I like tank tops that have stuff on the back, like a design,” said Lexee, finding an example on a rack.

Skye said he’ll probably opt for a T-shirt and shorts on the first day, which is pretty standard for the male student population. “Guys go with their favorite teams a lot. I personally like Boise State. In winter, it’s sweatshirts. The rest of the time it’s T-shirts.”

Wearing a jean jacket with jeans is a fashion don’t, the teens advised. Vests are OK, unless they’re too valentines day jewelry. “No marshmallows,” said Lexee. “And jean shorts for guys our age is a fashion no.”

“These are a cheesy no,” added Tiffany, pointing to a T-shirt that says, “Hello. My name is awesome.”

Skye, Tiffany and Brandi buy most of their clothes. Lexee said her parents foot the bill for hers. She estimates her back-to-school wardrobe will cap out at about $400.

“It varies,” Brandi said. “Sometimes I spend $100 and other times I’ve spent up to $500.”

“People get jobs, save money and buy their own clothes over the course of the summer. It’s not like a one-day event anymore,” Skye said.

Finding a good deal is imperative if you’re on a limited budget, they said, and boys have a built-in advantage.

“Guys’ clothes are way cheaper than girls’ clothes,” Skye said.

That’s because clothing merchandisers know young women get hooked on certain must-have items and set the prices valentines gifts, Brandi said. “Girls set their hearts on clothes and if they can’t get it, they’re devastated. At least, most girls are like that.”

Clothes from Hollister, Abercombie & Fitch and American Eagle usually fall into that category, said the girls.

Brandi and Tiffany said their favorite store is Forever 21, and the closest one is in Spokane. Lexee likes the Buckle, which is in Moscow, and Skye doesn’t have a favorite.

“I like to express myself in a lot of different ways,” said Tiffany, who wants to work in the fashion industry someday.

“For the most part, I just want to dress decent,” Brandi said.

An artsy stroll with music and chocolate in Chandler: Jewelry, paintings, graffiti to line downtown streets

You can love or hate Valentine’s Day with its lacy doilies and sappy love notes, but most people look favorably on one aspect of the holiday — chocolate.

The Downtown Chandler Community Partnership is well aware of the sweet-tooth cravings that abound valentines day jewelry up to Valentine’s Day, and the organization is offering free chocolate to the first 50 people who come to their booth at the Downtown Chandler Art Walk on Wednesday.

Artwork featured will include photography, jewelry, paintings and more. Musicians will also provide entertainment.

“We will have the Brisas Mallets, which is a group of elementary school performers,” said organization member Eileen Brill Wagner. “They are very talented, and when they played last year they drew a huge crowd.”

Brill Wagner encourages all members of Chandler families to come out for the event.

“Kids can be dropped off at Mind Over Splatter, which is a downtown shop, for a free activity while their parents browse around the art walk,” she said.

Some of the art to be featured will include work by John Koleszar, who uses a spray-painting technique with handmade stencils, and urban graffiti by artists Brez and Closer.

“The group of artists who make up the art walk are a jury,” Brill Wagner said. “If other tiffany money clips are interested in displaying their work on the art walk, they submit photos and the jury votes. We limit the number of artists in each category so that we don’t have too much of one thing.”

“It’s a wonderful evening to stroll along the downtown streets where the restaurants are open,” Brill Wagner said. “I can’t think of a better family-friendly thing to do for free on a Wednesday night.”

Chandler Art Walk

When: 5-9 p.m. first Wednesday of the month

Where: Historic downtown tiffany pendants

Admission: Free

Information: Downtown Chandler Community Partnership, (480) 855-3539

Platinum jewellery demand to rocket in China

Demand for platinum jewellery in China will double to record levels this year, according to Johnson Matthey, the precious metals refiner, which released its latest review of the platinum and palladium markets on Tuesday.

Lower platinum prices have reignited buying interest in China’s jewellery sector with net tiffany demand forecast to rise 106 per cent to 1.75m ounces this year as wholesalers restocked and attractive profit margins drew new retailers into the market.

Johnson Matthey said restocking had driven a “dizzying increase” in jewellery production in China as the price differential between gold and platinum had helped platinum jewellery to recapture market share from white gold jewellery.

Record Chinese demand will help global platinum jewellery demand rise almost 80 per cent to 2.45m ounces this year, the first annual increase since 2002.

The strength of China’s platinum jewellery market has acted as a vital counterweight to weakness in the other key sectors for platinum demand in industrial applications such as glass making and the automotive sector.

The slump in car sales before governments in the US and Europe introduced their “cash for clunkers” incentives schemes means gross demand for platinum from the global automotive sector will fall 33 per cent to 2.48m ounces this year to its lowest level since 2000. Platinum is a key ingredient in autocatalysts in the diesel vehicles that dominate car sales in Europe.

Companies that operate fleets of vehicles of vehicles have delayed restocking and this has hurt demand for bracelets from the automotive sector which in Europe is forecast to drop 45.7 per cent to 1.07m ounces this year.

Johnson Matthey said it expected vehicle sales to be higher in 2010 than this year and that autocatalyst demand was returning but cautioned that the impact of the ending of car scrappage schemes was difficult to forecast.

Net global platinum demand was forecast to fall 4.4 per cent to 5.92m ounces this year while worldwide supplies were predicted to rise 1.9 per cent to 6.06m ounces, suggesting a supply surplus of 140,000 ounces in 2009.

Johnson Matthey said it expected platinum prices to trade between a low of $1,280 a troy ounce and a high of $1,550 over the next six months, depending on whether support continued from strength in the gold price, dollar weakness and investor interest.

Holdings in platinum exchange-traded funds currently stand at record levels and Johnson Matthey said it expected investors to buy 355,000 ounces of platinum for ETFs this year.

Overall investment demand was predicted to increase 630,000 ounces helped by Japanese investors buying platinum bars and a rise in North American demand for coins and small bars.

Looking forward, Johnson Matthey said it expected jewellery demand to soften next year as this year’s stockbuilding in China was unlikely to be repeated in 2010.

“Platinum has been successful in capturing market share from white gold, suggesting demand should continue to remain healthy over the coming year, ” said David Jollie, analyst at Johson Matthey.

Although platinum supplies are expected to grow in 2010, helped by production from newer mining operations in South cufflinks and Zimbabwe, Johnson Matthey said the market could move into a modest supply deficit next year as the global economy improved.

Palladium prices should be expected to trade between $290 and $390 a troy ounce over the next six months, helped by continuing investor interest and a recovery in vehicle production.

Net global palladium demand was forecast to fall 3.8 per cent to 6.52m ounces this year while worldwide supplies were predicted to decline 1.8 per cent to 7.18m ounces, suggesting a supply surplus of 140,000 ounces in 2009.

A key uncertainty which bedevils the palladium market is the size of sales from Russia’s state stocks which Johnson Matthey said it expected to remain unchanged at 960,000 ounces this year. Without these Russian sales, the palladium market would be in a supply deficit.

“Investors seem aware of the imbalance between demand and current mine production and are bullish for the palladium price over the longer term” said Mr Jollie.

Holdings in palladium exchange traded funds currently stand at record levels and Johnson Matthey said it expected investors to buy 540,000 ounces of platinum for ETFs this year, a significant rise on the 370,000 ounces purchased in 2008.

Demand for palladium coins and small bars looks set to almost double this year to 95,000 ounces, making a significant contribution to the overall increase in investment demand of 215,000 ounces in 2009.

Palladium’s jewellery market is expected to see demand rise across every region this year with global demand money clips to rise 7.6 per cent to 920,00 ounces this year.

In China, the availability of palladium jewellery varies widely between regions – and even between cities within one province – suggesting that retailers are not universally convinced about the appeal to consumers. China’s palladium jewellery market is expected to see demand rise 4.6 per cent to 680,000 ounces this year.

The fall in demand for palladium from the automotive sector has been much less violent than for platinum. Worldwide gross demand for palladium from automakers is forecast to fall 12.7 per cent to 3.90m ounces this year, the lowest since 2005.

In North America, automotive demand for palladium is predicted to drop 27.5 per cent to 935,00 ounces this year while European automotive demand is forecast to shrink 2 per cent to 985,000 ounces.

European automotive demand for palladium has been boosted by the introduction of the metal into platinum based catalysts. Over half of the catalysts fitted to diesel vehicles now contain palladium, on average 20 per cent, as well as platinum.

Platinum traded at $1,434 a troy ounce on Wednesday, up 55 per cent this year, while palladium was at $365 an ounce, gaining almost 98 per cent in 2009.

Trade ministry will seek support for export sectors that need it

The commerce ministry has concluded its sectoral review of exports and will seek additional support for industries still under pressure, commerce and industry minister Anand Sharma said on Wednesday.

“We will see what we can do and seek continuation of support where it is absolutely necessary,” he said, adding that labour-intensive sectors such as handicraft, leather, and gems and jewellery continue to be in trouble.

“Sectoral reviews have been completed. I am soon going to work on the recommendations. They will also get tiffany jewelry on our budget proposals,” Sharma told reporters at the sidelines of a conference organized by the Federation of Indian Chambers of Commerce and Industry, or Ficci.

The Directorate-General of Foreign Trade (DGFT) under the ministry carried out the performance review of key export sectors.

It also examined if any sector might need additional incentives due to the slump in external demand for Indian goods.

Asked if the finance ministry would withdraw some of the incentives provided to the exporters, Sharma said any such move will be a considered pull-back. “The finance minister will dispassionately examine the sectoral performance and do what is judicious,” he said.

Merchandise exports rose in November for the first time this fiscal to $13.2 billion (Rs61,512 crore) from $11.16 billion tiffany money clips, up 18.28%. However, exports in the April-November period were lower than in the year-ago period, having dropped 22.32% to $104.25 billion.

Sectors that saw significant growth are gems and jewellery (40.4%), petroleum products (83.6%), iron ore (47.2%), and plastic and linoleum (28%).

The sectors that lagged behind are textiles (6%), drugs and fine chemicals (8.7%), tobacco (5.6%), carpet (5.8%), and engineering goods (6.8%).

Earlier on Wednesday, commerce secretary Rahul Khullar said: “I am not in favour of providing incentives if it cannot be sustained.”

Khullar also called for “some degree of stability”, expressing apprehension that there could be a tendency to “tiffany pendants back some of the incentives” already provided to exporters.

Gems and jewellery sector worried over changes in Direct Taxes Code

Faced with severe margin pressures, members of the gems and jewellery industry (GJI) are tiffany now concerned about the proposed changes in the Direct Taxes Code, including provisions relating to search and seizure, tax deduction at source (TDS) and minimum alternate tax (MAT).

The All India Gems and Jewellery Trade Federation (GJF), an apex body representing the trade feels that since the proposed changes are in the draft bill now under circulation, the Finance Ministry could reconsider these provisions. If the Code gets cleared in the present form to be applicable from April 1, 2011, the industry would be adversely hit.

The Director of All-India Gems and Jewellery Federation, Mr Mohanlal Jain, said, “if these changes are not brought about before enacting the Direct Taxes Code Bill, 2009, the provisions relating to seizure of any stock in trade of bullion, precious and semi-precious stones or jewellery, is draconian and discriminatory against the GJF trade.” The seizure of entire stock in trade when there is any difference during raids is not acceptable. The GJF has also objected to 2 per cent tax on gross assets since the industry operates on small margins with high inventory valentines jewelry levels. There is a discrepancy in this as a company earning 2 per cent net profit will require to pay the same tax as a company earning 8 per cent net profit, Mr Jain said.

The GJI in India contributes to approximately 3 per cent of the gross domestic product of the country and is a key player in the economy. Therefore, it would be in the interest of the Government to ensure that it remains healthy and the trading community are not subjected to these proposed provisions.

“As a representative of the industry trade body, we are taking up the matter with the Finance Ministry and apex silver bangles chambers and hope that the changes are brought about before it is finally enacted,” he said.

Diamonds poised for derivative polish

Until now, the only way that a lovestruck Romeo could fix the future cost of buying a diamond ring was to purchase a stone at the price he liked – and then stick it in the drawer.

But the financial markets may soon be able to offer diamond buyers a new option – irrespective of whether they are purchasing the gemstones for industrial purposes or to turn intotrinkets.

Next week, two sets of meetings will take place in Antwerp, the Belgian city that is a global centre of gemstone trading, at which bankers and diamond experts will discuss initiatives to create the world’s first set of diamond derivatives.

The launch of such a market will finally allow investors and diamond buyers to bet on future prices and erode the pricing power held by a handful of industry incumbents.

One of these gatherings has been organized by Martin Rapaport, who runs a prominent brokerage company based out of New York, which is the leading source of consumer diamond prices.

The other is sponsored by PolishedPrices.com, a specialist diamond information provider, which is talking to powerful financial operators such as ABN Amro.

It remains to be seen which of these rival groups will be the first to produce an actual derivatives contract, or where this contract will be based and how it might be structured.

The Rapaport group is already talking to American regulators about creating a New York-based diamond futures market – mindful of the fact that the US is the world’s biggest single consumer of diamonds.

However, the PolishedPrices group is holding talks with leading operators in the commodities and futures market, such as the London Metal Exchange and ICAP, the interdealer group, as well as the Chicago Board of Trade and Cargill.

Taken together, this marks a potential revolution for the industry. In other commodity sectors, such as gold or silver, financiers have already created the type of transparent, efficient financial markets and pricing indices that can support the use of derivatives.

However, the diamond world has hitherto been dominated by opaque, bilateral dealmaking.

Although groups such as Mr Rapaport’s offer some price data, this remains relatively limited.

This opacity partly reflects the fact that diamonds – unlike gold – vary wildly in quality and price. However, powerful producers in the industry have wanted to control prices too while retailers and brokers have feared that greater transparency would hurt their margins. “People in the diamond industry have always been terrified of transparency because if consumers saw all the prices, how could anyone get their mark-ups?” chuckles Mr Rapaport. However, a new set of imperatives are coming into play, which have paved the way for next week’s meetings in Antwerp.

One is that the banking industry is become increasingly adept at applying derivatives technology to unconventional fields. Thus, while bankers used to assume that derivatives could only be created with products that are homogenous and fungible, they are now developing derivatives in highly fragmented sectors, such as property.

At the same time, banks have become eager to hedge their swelling exposure to the diamond industry.

“The commercial funding being done by banks to (the) diamond industry has doubled in the past five years . . . The interest of banks (in promoting derivatives) is that it will mitigate some of the risks and will allow our clients to have a more rational behaviour,” says Loet Kniphorst, global head of the international diamond and jewellery group at ABN Amro, the world’s biggest lender to the diamond industry.

Even within that industry, there is now a growing – albeit grudging – acceptance that more price transparency is inevitable.

That is partly because the internet is already undercutting the power of the middlemen. Legislation in the US and Europe to counter money laundering and the trade in “conflict diamonds” from war-torn African countries is adding another trigger for transparency.

Meanwhile, producers such as De Beers have seen their control decline sharply over the past decade, undercutting their power over how prices are determined.

De Beers’ market share has fallen from about 90 per cent in the mid-1980s to today’s 50 per cent, due to the arrival of new competitors, both large and small.

“The fact that anyone is even talking about derivatives shows just how much control De Beers has lost,” says one diamond expert.

De Beers, for its part, says it is agnostic about the derivatives proposal – but stresses that the initiative faces problems. “Whether there could be advantages for the diamond industry remains to be seen – but itis an academic question because there are very real challenges with implementation given the need for extensive and robust pricing trend data,” says Stephen Lussier, communications director of De Beers.

Others share this caution. “We have spent a lot of time talking to people about diamond derivatives but have heard a lot of reluctance from people in the trade,” Colin Griffith, chairman of the Dubai Gold and Commodities Exchange, told a conference in London yesterday.

Nevertheless, such doubts are not deterring the bankers from trying to mine this new frontier. ABN Amro’s Mr Kniphurst, for example, thinks that the first step would be to create over-the- counter derivatives for polished diamonds – before eventually creating basket or index products that might cover rough stones too.

“The big difference between gold and diamonds is that (gold) is pretty standardised – the only parallel we have tried to draw is steel,” he says.

Meanwhile, Mr Rapaport’s group plans to create a traded cash index and a related futures contract for one-carat diamonds later this year before latermoving into other diamondsectors.

“Nobody is saying we can do this overnight – there is a huge difference between diamonds sold in Tiffany’s and Wal-Mart,” he says. “But once we go towards using financial markets (for futures pricing), we are moving towards real free markets. I hope even dealers will eventually recognise that is a good thing.”

No breakfast at Tiffany’s for France’s king of luxury

There is a growing sense of irritation in the stylish Parisian Avenue Montaigne headquarters of LVMH, the world’s leading luxury goods group, which is controlled by Bernard Arnault. Every week, some rumour pops up in the market that Mr Arnault is about to splash out to buy yet another luxury brand to add to his impressive collection.

A fortnight ago it was again the turn of Hermes, the French family-controlled group, to be the centre of renewed speculation that LVMH was considering taking it over. Sure, Mr Arnault would probably dearly love one day to get his hands on such a prestigious luxury brand as Hermes. But the family, so far at least, does not seem to be in any mood or hurry to sell. Any eventual predator should also quickly forget the idea of making an unsolicited approach given the venerable company’s rock-solid anti-takeover defences.

This week it was the old Tiffany rumour that was briefly doing the rounds again in the market. Unlike Hermes, the famous US jeweller is a widely held group, with an activist investor holding the single largest stake of around 8 per cent. He would probably like to make a deal and LVMH has undoubtedly studied the possibility. But that certainly does not mean it is interested – far from it, judging from the annoyed reaction of group insiders whenever the subject is raised.

Tiffany could tempt Mr Arnault for several reasons, claim the rumour-mongers. It would strengthen his group’s presence in the jewellery and watches business where LVMH still trails its Swiss rival Richemont, owner of brands such as Cartier, Van Cleef and Piaget. This sector of the luxury goods industry is continuing to grow strongly even in the current difficult economic climate.

The weak dollar also offers a good window of opportunity to make a US acquisition.

Yet the takeover speculation of the past year has pushed Tiffany’s share price to a level that would make any acquisition even with the low dollar very expensive – more than Dollars 6bn, according to some estimates. Second, Tiffany does not really fit with Mr Arnault’s strategy of concentrating on upscale luxury groups. For although it is well-known for its diamonds, Tiffany is also regarded by many as a low-level luxury brand, selling silver jewellery at very affordable prices.

Last, but not least, the US group also possesses an inherent poison pill following its recent 20-year alliance with Swatch. Under this partnership, the Swiss group will help Tiffany develop its watch collections. So anybody acquiring Tiffany would have to decide whether it wanted to pursue this collaboration in watches with the Swiss company. If not, as would undoubtedly be the case of LVMH, it would be forced into what would inevitably be costly and complex negotiations with the Swiss to break their long-term agreement.

That said, Mr Arnault will continue to be the centre of stock market speculation over his next big luxury shopping spree. Now that the Hermes and Tiffany rumours have come and gone, it will probably be the turn of Bulgari – the Italian family-controlled jeweller that regularly features as a potential LVMH target – to command the market’s attention. All very annoying for Mr Arnault, but that is the price of being the undisputed king of luxury.

Last hurrah smiles over Wahaha

There are now signs that the 18-month legal battle between Danone and its Chinese joint venture partner is about to end. It has been a particularly acrimonious dispute that has even required the intervention of French president Nicolas Sarkozy and the Chinese leadership. But the two sides have finally agreed on a simple compromise whereby either the French food group pulls out entirely from the Wahaha joint venture, or vice-versa.

Previous efforts to settle the dispute have failed, but the pressure to reach an agreement has been building up on Danone’s Chinese partner, entrepreneur Zong Qinghou.

At the same time, the French group indicated it had spent enough management time and money on the issue and now intended to pursue its own go-it-alone strategy in China. It deconsolidated the joint venture from its balance sheet and – through its acquisition of Numico, the Dutch baby-food maker – Danone now has a well-established vehicle in China.

The two sides are negotiating who will ultimately take over the whole of Wahaha. No middle road or intermediate solution is envisaged because of the total breakdown of confidence between the two former partners.

This bitter saga throws a revealing light on the economic evolution of the country where local entrepreneurs, once tied in joint ventures with foreign companies, are increasingly turning into direct competitors of their former foreign partners.