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China Breather Brings Down Bordeaux Prices

Posted: Wednesday, 18 January 2012 13:41

China Breather Brings Down Bordeaux Prices

Jan 18 : Chinese premium wine market seems to have been downgraded with speculators and the affluent Chinese cooling off to Bordeaux's most prestigious, investment-grade wines and thus causing a significant dip in the wine prices with the China speculative bubble seemingly bursting finally as predicted by delWine several months ago.

 ‘What goes up must come down
Spinning wheel got to go round’

The lyrics of the super-hit of the sixties by the rock band ‘Blood, Sweat and Tears’ ring in the  ears in case of China where the market for premium wines (read Lafite et al) and several other labels, has been softening during the last 6 months after hitting the roof for over three years.

According to numbers quoted in the industry, volumes of everyday wine exported to China is still going strong but the demand for Classified Growths like Lafite have taken a beating, keeping in line with the fall in the London Liv-ex Fine Wine 100 Index which fell reportedly by 22 percent since its peak at the end of June 2011 and 15% for the full year 2011.

Key to the lower price has been a slowdown in demand from China - the main driver of the market over the past 24 months. China is not buying at silly prices any longer, according to a wine merchant.

When China entered the market of fine wines three years ago, the market was on fire with the demand exploding for first Growths Bordeaux, especially Lafite. The chateaux and speculators, hoping to cash in on China's thirst for luxury products in the form of these First Growths, pushed the prices sky high, says one wine merchant.

Indicators of wine prices softening were evident in the second half of last year when the chateaux released their wine En Primeur (futures delivery). Many wine merchants bought their allocations of wine lest they lose their share in the following year. But they were unable to resell some of the wine. This left the merchants understandably in a cash crunch with very high inventories.

The campaign for selling En Primeur ended with prices peaking in June- end in  2011. Since then the market has turned bearish, with prices visibly softening.

"Some of the Chinese super rich are getting tired of Lafite," Georges Tong, a prominent Hong Kong wine collector says, according to Business Live."Presenting a bottle of Lafite as a gift is not as fashionable as before. Gift recipients are now demanding Domaine de la Romanée Conti (DRC)," referring to the iconic Burgundy wine that can easily cost €12,000 a bottle.

Fear of a deep euro-zone recession and a real-estate bubble in China has also encouraged the fickle minded investors to sell their most speculative wine investments, softening the prices further. "There's fear of the property bubble that is making people anxious," said Don St. Pierre, Jr., CEO of ASC Fine Wines, with 24 offices across China who was also my fellow panelist at the Wine Future international conference in November in Hong Kong where he talked about the wine marketing strategy in China. He has the pulse of the Chinese market, being a leading importer there."People who have been holding these speculative wines are selling, so that's bringing down prices," he says.

HK Auctions turning soft

The current year has started with wine auctions being soft too, especially for Bordeaux wines-and more particularly the younger vintages. There has also been a distinct shift towards Burgundy. Fetching HK$44 million, the Sotheby Auction earlier this month failed to reach its prospective HK$50-70m. Six lots of Château Lafite 2003 went unsold, as did other lots of Mouton Rothschild and Margaux. However, Burgundy topped the list for the most sought-after lots, in continuation of the trend that started in the second half of 2011.

“This is the end of the first act of the new Asian wine market as it takes a breather. Prices of commodity high-end Bordeaux will settle down in the first half of the year as top collectors become more selective about what they are buying. There is less liquidity and the market is evolving. A historic quantity was sold at historic prices in the last three years which mean that collectors now want to diversify the content of their cellars,” reportedly says Robert Sleigh, head of Sotheby’s in Asia.

US auction house Zachys and the leading auctioneer Acker Merrall & Condit had more successful sales at the auctions last Friday and Saturday respectively. Acker had been instrumental in having Hong Kong displace London and New York  as the leading auction markets after setting base in Hong Kong over a couple of years ago, with the Chinese investors as the leading bidders.

Fakery goes unabated

In India, goes the saying, ‘more Scotch is drunk than produced in Scotland.’ The analogy fits rather well for wines in China where the obsession for Lafite has made fakery an art and a lucrative business model.

The Shanghai Times has reported an enterprising businessman importing bulk red wines through Hong Kong and bottling them at his factory-ship as Chateau Lafite Rothschild.  CCTV, the national broadcaster, has cited the case of a 5-star hotel in South China, selling 40,000 bottles of Lafite annually. The annual allocation of Chateau Lafite Rothschild to the entire China market is only 50,000 bottles, according to the report in Asia Sentinel.  

The level of fakery appears to be mind boggling, which would put spurious Scotch whisky bottlers and bootleggers in India to shame. Although the iconic French producer Lafite Rothschild bottles only about 200,000 bottles annually, China reportedly records the sale of about 3 million such bottles annually. Even an empty bottle of a genuine Lafite sells for nearly US$450 a bottle (about Rs. 25,000!) to the kabaarhis (recyclers).

While it may be too early to tell if the long term obsession for top Bordeaux wines is finally waning, it does look that at the moment the spinning wheel is ready  to turn around.

Subhash Arora
(compiled from several reports)



Niladri Dhar Says:

Great read! China's growth in the international wine market is paradoxical to say the least. No doubt it has shown an immense thirst for quality wines, a closer scrutiny will also reveal that a large part of the growth story was driven by a lot of hype (and Hong Kong). And not to miss the rampant fakery as you have so appropriately underlined. I also wrote on the same subject in my blog some time ago. Isn't it quite interesting that fakery allegations never seem to leave the Chinese? But as a good and 'friendly' neighbour we all should give them the due credit in mastering this art, that too in copying as complex a product as a Bordeaux First Growth! Cheers, Niladri Dhar

Posted @ January 20, 2012 10:53


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