The current financial crisis affects everybody to some extent. What should you do about it? It depends. Despite the fact that the USA market has been the center of the crisis, it is possible that the mineral dealers in the USA can make lemonade out of lemons. What does it depend on? Your cash position. If your cash position is strong you can benefit 3 ways. 1. Self finance your inventory buildup. 2. Take advantage of the stronger dollar by upfront payment. 3. Withstand a consumer slowdown.
In the current tight credit market, having cash will give you an advantage in what I argue is a buyers market, at least for the USA. You can buy while others have to wait on the sidelines.
For the last few years the dollar has been losing value and especially in relation to the Brazilian Real. Brazilian producers have tried to keep their prices the same in dollar terms, but many producers have gone out of business and others have raised prices. Under the current crisis the dollar has appreciated as investment has flown out of stocks and into supposedly safer treasury bonds, thus propping up the dollar. This stronger dollar makes it easier for Americans to buy Brazilian minerals and more expensive for Europeans. This should be the perfect time to buy for Americans and perhaps some other countries that have a currency pegged to the dollar. Brazilian producers have not lowered their "sticker" prices in response to the dollar valuation yet because they hope to make up for losses while the dollar was going down. However, when it comes time to close a deal they are more flexible to discount, especially if you can pay upfront. There is a lot of fear that the bump in the dollar is temporary, and waiting for a 30-90 day cycle of shipping and payment upon delivery can be a recipe to lose your shirt in the volatile currency exchange market. Cash payments will almost certainly lead to better deals.
Some dealers are worried that even if they have cash now the slowing of consumer spending will lead to weak sales and so building up their inventory would be pointless. While a reduction in consumer spending is possible, mineral dealers have a benefit that many don't. Minerals are non perishable and don't face a technology curve. Perhaps good buys today won't be made profitable immediately, but the dealer who buys now will have better margins when the upturn arrives.
Every business and situation is different and nobody knows your business like you do. I can't speak for everyone, but as I evaluate the situation I think it's a good time to buy Brazilian minerals, as long as you have the cash and the patience. I'd love to hear comment from the readers as to how your business has been affected so far what are your expectations for 2009. I would especially love to hear from any old-timers that have been around in the business long enough to report how the minerals market reacts under economic downturns.
2 comentários:
Hmmm, very interesting. I will have to tell my husband about this. He bought me some jewelry for Christmas to which I had to promptly inform him to return... not because it wasn't lovely but because it was purchased on credit. Right now anything outside of cash purchases sorely aggravates me. But since Brazilian minerals are more affordable at this point in time perhaps it would pay to look into. Thanks for the update!
Just remember Debbie that a lot of jewelry from Brazilian stones is cut and faceted in India, Thailand,or China. Also, my analysis is primarily of the wholesale market, but it might affect the retail market.
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