Pearls: Stronger Dollar Builds Opportunities

The rise of the U.S. dollar against the Japanese yen has sent an optimistic current through the U.S. cultured pearl industry. Strengthening it is a belief that consumer demand for quality akoya, black and South Seas pearls will continue slow but steady growth. As a result, dealers think they’ll actually make some money this year.

“It looks like 1995 had a good sell-through, so we should be looking at a year with steadily rising demand without a lot of old stock,” says Ray Mastoloni of Frank Mastoloni Inc., New York, N.Y.

Dealers are particularly encouraged that demand for akoya necklaces grew in 1995, even though the dollar was in a less favorable position against the yen through part of the year. Now that the dollar has regained some strength, dealers expect to recoup some of the cost increase they had to absorb last year. “If the dollar slips again, though, both sides will have to give and no one will make any money,” says Mastoloni.

China, Japan: Dealers have long worried about the impact of Chinese semiround freshwater and akoya pearls on Japanese pearls. But they say it now appears China won’t be able to produce large commercial quantities of high quality, lustrous pearls for years.

Some believe China has reached a quality plateau that remains far below Japan’s. “We haven’t seen any significant improvement in their freshwater pearls for a few years,” says Rick Reuter, president of Leys Christie, New York, N.Y. “I believe their akoyas are produced in waters too warm to create the luster that the Japanese get.” As U.S. consumers seem to be growing more quality conscious, that doesn’t bode well for Chinese pearls in the near term.

In Japan, meanwhile, exporters muddled through a horrendous 1995. An earthquake in Kobe last January damaged or destroyed many business operations. The pearl trade was four to six weeks late in bringing the 1995 harvest to market. Fortunately, the quake didn’t affect producing areas, located 100 miles south.

A quake of a different sort also rattled Japan, with the banking system facing bad loans totaling up to $800 million. Although the financial instability has made credit difficult to obtain, the pearl establishment is fairly well-set for cash and not heavily dependent on bank financing.

At the top: Dealers of black pearls and white South Seas pearls expect business to continue growing this year as U.S. consumers become more aware of their products.

Demand for black pearls from Tahiti and other islands has risen considerably in recent years, partly because prices have dropped thanks to overproduction and less demand from recession-racked Japan. While the best Tahitian blacks remain very costly, medium to lesser qualities have become much more affordable, say dealers.

Except for the lowest qualities, white South Seas pearls haven’t come down in price because an expected surge from Indonesia has yet to materialize and because Australian pearlers have kept tight caps on production. Still, dealers say demand for medium quality strands ($20,000-$60,000) has been brisk.

Dealers expect a boost this year from a $2 million advertising and public relations campaign. Ads promoting the uniqueness of South Seas pearls will appear in such publications as W, Departures (the magazine for American Express platinum card members) and Avenue (a style magazine for affluent New Yorkers that is making a national push). They will stress the difference between South Seas pearls and less expensive varieties. Thus one tag line reads, “There are churches, and there’s the Sistine Chapel; there are pearls and there are South Seas Pearls.” (For more on the campaign, see Gem Notes, January 1996. )

HIGHLIGHTS

  1. A weaker yen puts Japanese pearls in a better position for U.S. sales.

  2. China’s semiround freshwater and akoya pearls seem to have reached a quality plateau far below Japan’s, say dealers.

  3. Japan’s pearl trade has recovered from the Kobe earthquake and, thus far, avoided problems related to banking industry woes.

  4. Dealers hope to educate U.S. consumers about South Seas pearls with a $2 million advertising and public relations campaign.