WHAT’S BEHIND THE METEORIC PRICE RISE IN CHINESE MINERALS?

At the Tucson Gem & Mineral Show in 2009, some of the wholesale prices for fine mineral specimens from China went up 1000% compared to 2008 prices!  Buyers, including me, were shocked, stunned, bewildered and baffled by this sudden change.  What was behind this craziness?  Of course, once word was out that the Chinese specimens were insanely expensive, dealers largely steered clear of the venues where Chinese dealers were concentrated.  For example, at the Quality Inn, where many of the wholesale Chinese dealers congregate, there were almost no buyers to be seen, and hallways that previously bustled with buyers were deserted.  Even at the end of the show, when prices have always dropped dramatically, most of the Chinese dealers would not negotiate.

Wholesale price 2010: about $450-$500. Our retail price right now: $350

Here are a few examples:  In 2008 at the Tucson, we purchased good quality, cabinet-sized specimens of cinnabar crystals on dolomite from a Chinese dealer for about $75 each.  In 2009, specimens of comparable quality were priced at $275 each.  DeAn fluorites that sold for $100 were priced at $500 and up in 2009.  Scheelites that were $300 were going for $3,000.  And the same pattern held true for everything from pyromorphites to realgar to stibnite.  Even lowly calcite specimens that used to go for $5 or $10 now cost $50 or even $100.  Once the word got out that Chinese mineral prices had skyrocketed to these new levels, potential buyers stayed away in droves.

In 2010, my dealer friends (and me) all predicted the same thing: the swelling numbers of Chinese dealers would drop dramatically, and prices would fall back close to pre-2009 levels.  Boy, were we wrong! In fact, in 2010 there was only a slight dip (maybe down 10% on average) in prices compared to 2009, but the number of Chinese dealers was almost unchanged.  And, where bargaining had always been the order of the day, many of the wholesale dealers would not budge from their first-quote prices.

So what’s up with these insane prices?  Why did they escalate to such heights almost overnight?  Was this some kind of large-scale Chinese conspiracy to drive up prices? I posed this question to several of my Chinese friends who are wholesale dealers, and received some intriguing and surprising answers. As usual, no single factor drove the prices up.  Instead, it appears to be the result of a number of market adjustments, plus the advent of the internet, plus the laws of supply and demand, plus economic and class changes in China, and even political changes which converged almost simultaneously to create a price explosion that is far beyond anything I have ever seen in many years of visiting the Tucson shows.  Here are some comments on the multiple factors behind the explosive price increase.

Increase in the Number of Dealers

In 1998, I met my first wholesale Chinese dealers in Tucson (all 2 of ‘em).  They were set up in upstairs rooms at the old Executive Inn.  That number has grown every year, as more and more Chinese dealers make the trip to sell their minerals in Tucson’s hotel rooms.  The early pioneers who came to Tucson were only the first wave.  They returned home and told stories of their success, thus spawning a second wave of several dozen dealers to come to Tucson in 2000-2004.  These people returned to China, told their success stories, and inspired a third wave.  By 2008, hundreds of Chinese dealers flew over and set up in Tucson.  More sellers meant more specimens to choose from, so from 2002 to 2007, buyers could pick from dozens of exciting mineral species from new-to-the-market localities, some in world-class specimens, all offered at bargain prices.  At first, as the number of dealers increased, the amount of material available material also increased, keeping prices low.  By 2007, however, the number of dealers outgrew the amount of new material, and the prices the wholesale buyers had to pay went up rapidly as bidding for wholesale lots of specimens became increasingly competitive.

Improved Quality

Wholesale price 2010: about $600-$750. Our retail price right now: $525

Buyers expect to pay more for higher quality specimens.  The pioneering Chinese sellers brought many damaged specimens, not realizing the importance buyers attach to this.  The sellers learned quickly, and when they returned to China, they educated the people they were buying from.  Quality quickly improved, and undamaged specimens became the norm.  With more and more wholesalers competing to buy “the good stuff,” prices go up (that’s Supply & Demand 101).

Insertion of a New Wholesale Structure

In the early years, the pioneering Chinese dealers had to ferret out new material themselves, most often travelling to the mines in secret to buy specimens direct from the miners.

(Note: That’s the main reason that in the period from roughly 1999 to 2005, information about Chinese localities was either vague, incomplete, or wildly inaccurate, as sellers tried to protect their sources and retain their status as the only one offering specific material.)

Eventually, the growth in the number of Chinese dealers spawned a new class of middle men, who began to supply the mineral wholesalers and offer them a wider variety of minerals.  These middle-level dealers often set up exclusive contracts with miners, in order to control the market and manipulate prices.  Of course, whenever a new tier is added to the supply chain, prices increase.  This was yet another factor in the price explosion of 2008.

Advent of the Internet

In Tucson in 2002, I began to buy quantities of Chinese specimens to sell on the internet.   Since our costs were low, we could afford to sell these specimens for very reasonable prices.  It didn’t take long for the Chinese wholesalers to wise up to the internet.  Imagine their surprise when they found the specimens they had sold us on our website, at prices that were obviously higher than what they sold them for.  Naturally, they wanted a bigger slice of the pie, so up went the prices again.

Basic Metal Prices Have Fallen

With the world economy slowed down, prices for tin, copper, zinc, lead, etc. dropped.  At the same time, the Chinese government began to impose new safety and environmental laws, and the cost of compliance with the new regulations has cost mine owners dearly.  When the cost of mining goes up and the value of ore goes down, profits tumble.  So owners began to look for new sources of revenue.  High mineral specimen values translated into a new source of revenue with little or no increase in the cost of mining.  And when mine owners began to take their cut, prices were again pushed higher.

Chinese Wages Are Up

A new expression among Chinese social science researchers is “Zhong Chan,” meaning “middle class” or “middle property” in Chinese. The annual growth rate of the national average salary in China remains at 17%, despite the Global Financial Crisis in 2008.  With Chinese workers earning more, the burgeoning middle class has begun to flex new financial muscles.  Increasing prosperity among the Chinese populace has created a new market for Western retailers who previously envisioned China solely as a supplier of goods.  A better life style has also increased interest in collectibles, and Chinese collectors began to buy mineral specimens.  It’s Supply & Demand 101 all over again: increased demand for a limited supply of fine crystal specimens drives prices higher.

Localities Closing or Production Dropping

Wholesale price 2010: about $275-$300. Our retail price right now: $195

One of the many factors affecting mineral pricing worldwide is changes in mining conditions.  China is no exception. When a mine closes, or when production decreases, prices for specimens from that mine usually go up.  This drove up the prices for several favorite Chinese minerals, including Fujian spessartine garnets, Ping Wu scheelite, and Lechang red quartz.

Increased Shipping Costs

When the price for a barrel of crude oil topped $145 in July, 2008, shipping costs increased dramatically.  UPS, FedEx, and other international shippers implemented price increase and/or fuel surcharges, making it more expensive for sellers to bring new material to Tucson.  These costs have been passed on to buyers.

WHAT WILL THE OUTCOME BE?

The most immediate impact of the new, high prices was of course that sales dropped.  Without the expected influx of cash, Chinese dealers returned to China without pockets full of money to buy more minerals.  Some will fall by the wayside and go out of business, and won’t be seen in Tucson again.  And, prices will fall a bit, as they did in 2010 – but will never return to where they once were.  One final interesting tidbit puts this all into focus: in Tucson in 2010, many dealers were talking about the once unthinkable – shipping specimens back to China.  This only made sense because they could actually get higher prices for their wares at home than in Tucson.

In summary, the glory days of buying stunning Chinese minerals at rock-bottom prices are gone forever.  We’re just going to have to get used to paying more (i.e., a lot more) for those stunning Chinese specimens we want to add to our collections.  Personally, I feel lucky that I was present to witness first-hand such exemplary lessons in the basic laws of economics, in the capriciousness of international trade, and in the volatility of mineral prices.

Final Tip

Many dealers (Treasure Mountain Mining included) have not re-priced our inventories, so excellent deals can still to be had on in-stock Chinese specimens.  In fact, for the last 2 years, I bought more Chinese specimens from American wholesalers selling off old stock than I did from Chinese dealers.  But such bargains will only last for a short time, so take advantage of them while they last.