Dishing Up Pearls in a Buyer’s Market

In the volatile international pearl market, conditions and prices change almost daily. For American retail jewelers, the market’s turbulence generally means good values, and right now there are ample opportunities to offer new looks or stock up on best sellers as pearl producers struggle to keep prices from sinking any lower.

Akoyas Overall production has dropped in the past 10 years. In Japan, production is down 50 percent, according to a report compiled by Andy Müller, president, Hinata Trading, Kobe, Japan, and presented to the European Gemmological Symposium in June. Industry experts blame the rising popularity of South Seas, Tahitians, and Chinese freshwater cultured pearls, as well as the increasing quality and value of the latter. In addition, the economic downturn has discouraged consumer purchases and restricted bank credit to producers.

"Many Japanese farms are in the red," says Jeremy Shepherd, CEO, Pearl Paradise, Los Angeles. Nevertheless, at press time Shepherd had received word from his partner in China that Japanese akoya prices had inched up slightly "for the first time in three years," he said.

Another bright spot for Japanese akoyas: Mikimoto’s Ainoshima farm in the open ocean near Fukuoka Prefecture uses wild oysters, which will help improve biodiversity and pearl harvests.

Meanwhile, violent weather has pummeled Chinese akoya pearl farms and stunted production, a repeat of conditions of two years ago. As a result, high-quality goods are scarce.

Chinese freshwaters Anyone who’s visited the American Gem Trade Association GemFair in Tucson, Ariz., knows that hanks of Chinese freshwater pearls pile high and wide in many tents. And even though production has fallen the past two years, according to Shepherd, prices are still competitive, and quality continues to improve.

"We’ve seen much more availability of perfectly round to near perfectly round strands," he says. "We’ve seen strands with metallic, high-grade, and akoya-like luster. The finest metallic-luster strands were nearly impossible to acquire just two years ago."

However, others expect prices to start creeping up this fall. "The market was very weak in January," says Peter Bazar, president, Imperial, East Providence, R.I. "There was a surplus in the market and prices fell, but now demand is up."

So prices will rise, but only at a production level; it will take years for those goods to reach the market and push up prices for American retailers.

South Seas Production in Indonesia has driven down prices—and, unfortunately, quality—of South Seas pearls. Now producer prices hover at a difficult-to-maintain rate, and production has dropped. In particular, Paspaley, with farms in Australia, has cut production by half, a fact it revealed to the international press in mid-September. As small producers struggle to recoup costs, many are dumping smaller, lower-quality goods—some for as little as $70 a strand for low-quality circle pearls—into the market, holding better-quality goods until prices rise again. Many smaller producers that can’t afford to keep back goods have folded.

"Right now people are looking for big looks for less money," says Jack Lynch, president, Sea Hunt Pearls, San Francisco, who sees a dearth of availability in top-quality goldens and whites.

Tahitians Overproduction of Tahitians, particularly in the 8–10 mm range, is still flooding the market with small material and forcing prices to plummet, a fact JCK first reported in October 2001 ("Too Many Tahitians?" p. 98). So many pearls are clogging the pipeline that prices probably won’t start to rise to sustainable levels for producers for another year, according to some.

The French Polynesian government, which issued as many as 1,500 farming licenses in the late 1990s, is partly to blame. To help reduce excess inventory, it eliminated the export tax last year to increase purchases, right about the time the marketing arm GIE Perles de Tahiti folded, virtually eliminating promotional funds for black pearls. The government reinstated the tax in July 2009 to help regulate prices.

But the damage was done, and prices are below the cost of production. Many Tahitian producers are going out of business, and industry experts predict that just 350 producers will remain by year’s end (some 1,100 existed eight years ago). "The majority of pearl farms in French Polynesia have dumped stock in China and Hong Kong," says Shepherd. "But in a year or two, prices could go up 200 to 300 percent."

For Josh Humbert, president, Kamoka pearls, Papeete, Tahiti, that time can’t come soon enough. His 18-year-old pearl farm on the Ahe atoll, 300 miles northeast of Tahiti in the Tuamotu Archipelago, produces about 60,000 pearls a year for a sophisticated group of 20 international clients who appreciate his ecologically sustainable farming techniques. (Fish clean his oysters, his nuclei come from recycled mother-of-pearl, and wind and solar power supply his energy).

Humbert cut production by nearly half this year, and he’s sitting on about 20,000 unsold pearls waiting for prices pick up. In a typical year, he has about 5,000 leftover pearls. "It’s a pretty scary time to be a Tahitian pearl farmer," he says. "When there’s anarchy in the marketplace, the one who profits is the buyer.

"The prices now are dictated by farms that are going out of business," he adds. "[Farmers] can’t continue to produce pearls at the prices that people are buying at today on a large wholesale level. I have to be competitive with what other people are doing. I hate it. Now is the time to buy your Tahitian pearls."

Seawater Cultured Pearl Production, by Value

Source: "A Brief Analysis of the Global Seawater Cultured Pearl Industry," by Andy Müller, president, Hinata Trading, Kobe, Japan, presented at the European Gemmological Symposium, Berne, Switzerland, June 2009.
Akoyas $400 million
White South Seas $24 million
Black South Seas $5 million
Akoyas $600 million
White South Seas $120 million
Black South Seas $75 million
Akoyas $131 million
White South Seas $217 million
Black South Seas $141 million
Akoyas $135 million
White South Seas $248 million
Black South Seas $125 million
Akoyas $65 million
White South Seas $172 million
Black South Seas $130 million