I recently announced and shared the Mercury Diamond Price List™ – the monthly wholesale price list for polished diamonds.
In doing so, I aimed to highlight the potential benefits to the diamond industry that using price lists backed by actual diamond transactions can have. This is because these lists, such as that produced by Mercury Diamond, provide, in my opinion, a better reflection of market prices than benchmark lists, which are based on asking prices.
The latest Mercury Diamond Price List™ covering prices for November is now available for download1.
However, the Mercury Diamond Price List™ is just the first step on the road to clear diamond pricing.
I would like to introduce the Mercury Diamond Price Calculator™ (MPC™)2, another Mercury Diamond tool. This calculator provides instant estimates of current wholesale market prices for polished diamonds based on all characteristics found on a diamond’s certificate, including irregularities.
In presenting this tool and making it immediately available, Mercury Diamond's seeks to encourage a more systematic and data-driven approach to diamond pricing. These are the core principles of Mercury Crystal Clear™3.
I believe that a clear approach to diamond pricing can benefit industry players and the industry as a whole. It will improve understanding among our non-expert partners who are so vital to our industry’s success. These include end consumers, banks and buyers of diamonds as a potential asset for wealth preservation. Clear diamond pricing will also reinforce the message that natural diamonds’ rarity and value-of-exchange starkly distinguish them from lab-grown gems.
No price list can fully calculate the price of a specific diamond
The Mercury Diamond Price List™, which I circulated this week and last, provides the wholesale polished price of a “top stone” with no comments or other irregularities.
Calculating the price of a specific diamond also requires factoring in comments and irregularities on the diamond’s certificate.
Mercury Diamond™ has developed a unique table containing discounts and premiums for more than 400 types of irregularities. This table, together with the Mercury Diamond Price List™, can provide a very close estimate of the wholesale market price for any specific diamond.
Considering there are over 18,000 price points across the 4Cs and more than 400 types of irregularities, it would be impractical for a list to cover the millions of possible price point permutations.
This is why Mercury Diamond™ developed The MPC™, a tool that automatically calculates every possible combination of 4Cs and irregularities.
From price list to specific price: Introducing the MPC™
The MPC™ estimates the current wholesale market price for a polished diamond based on all the characteristics found on its certificate. In this way, it moves beyond the traditional 4Cs.
These prices are estimates of the diamond’s wholesale market cash price. Prices may vary when the diamond is traded on the wholesale market. Furthermore, mark-ups will rise further down the diamond pipeline to reflect increasing value added.
While the MPC™ feeds off the Mercury Diamond Price List ™ to derive top stone prices based on the 4Cs, it also draws on Mercury Diamond’s proprietary table to go beyond the 4Cs by factoring in discounts or premiums based on comments and other irregularities.
The MPC™, Mercury Diamond Price List™ and proprietary irregularities table are tools derived from Mercury Crystal Clear®4, the unique pricing system for rough and polished diamonds that I developed for increased pricing transparency. This system has been validated and is regularly reviewed by a Big Four audit firm, and is in the process of obtaining a patent in the US.
How the MPC™ works
Upon receipt of a diamond certificate, Mercury Diamond™ automatically retrieves all its information, including the 4Cs and irregularities.
Once this information is retrieved, the MPC™:
• Calculates the value of the diamond as a “top stone” (i.e. without comments or other irregularities) according to the 4Cs, based on the Mercury Diamond Price List™.
• It then factors in discounts or premiums based on any comments or irregularities found on that particular stone.
• In some cases it may need to account for additional information on the physical characteristics of the diamond not found on the certificate (e.g. presence of a tinge).
Example (based on prices of November 2015)
How to use the MPC™
The MPC™ adopts the meticulous approach of an expert diamond valuator to handle more than 18,000 individual diamond price points and hundreds of other characteristics. It does all this without abandoning the subtleties of the stone-by-stone process.
As an automatic system, the MPC™ system bolsters buyers’ and sellers’ ability to price diamonds without seeing the stones in person. This can be utilized in a wide range of situations.
Setting the price of a rough diamond based on its full polished value
Using the MPC™, diamond manufacturers will be able to fully calculate the price they should pay for a rough diamond by using the same equation I proposed last week. However, now they may also factor in any anticipated irregularities on the polished diamond using the following formula:
The fair price per carat of a rough diamond should be equal to the price of its polished value including any irregularities (calculated with the MPC™), divided by the number of carats of that rough diamond, minus polishing and other costs and profit margin.
I used an example last week to demonstrate that in my view, the price at which it would be profitable to purchase a 4.25-carat rough stone that would yield a single 1.52 carats (colour E, clarity IF) stone is $4,104 per rough carat.
This price assumed the polished diamond had no irregularities. If the manufacturer foresees any specific irregularities, say Faint Blue Fluorescence and Surface Graining, the calculation would need to be adjusted as follows:
MPC™ will automatically calculate the price of the polished diamond based on the input provided by the manufacturer on the diamond’s 4Cs and irregularities. In this instance, the October price of $13,500 per carat without irregularities will drop to $10,920, accounting for no change in this price point in November and a 19% discount for irregularities.
Then, $16,598 for 1.52 carats, divided by 4.25 carats (total weight of the rough diamond) minus 15% (cost + margin) = $3,320 per carat. This is the price per carat at which it would be profitable to buy that rough diamond after taking into account anticipated irregularities.
Anticipating the likely yield of a diamond, including its irregularities, is a specialized skill possessed by manufacturers. However, automated tools like the MPC™ should be encouraged to adequately price all factors of the yield.
Other applications of the MPC™
The great advantage of an automated process for pricing polished diamonds is that it can be used across the industry simply by inserting the certificate number of the diamond under consideration. This will help in the following ways:
• Jewellers will be able to better estimate the price they should pay for wholesale diamonds
• Banks or other credit providers will be able to assess the value of their collateral
• It will encourage individuals and institutions purchasing diamonds for wealth preservation to obtain a realistic value of the diamonds they wish to buy, currently hold, or wish to sell
• It can be used to support new developments such as diamond spot markets.
Initiatives promoting pricing transparency are good for the industry
I believe that our industry should embrace initiatives which promote more transparency in diamond pricing. For such initiatives will ultimately help strengthen and expand our sector by attracting new buyers, credit providers and other essential stakeholders who need, now more than ever, to be fully reassured about the transaction value of diamonds they buy or lend against.
Promoting more clarity in diamond pricing will also help address a latent but nevertheless significant challenge presented by lab-grown diamonds. Whilst I have often highlighted that natural and lab-grown diamonds can happily co-exist, this will only be true if natural diamonds are recognised not only for their natural beauty but also for their rarity. However for the economics of rarity to work in practice, clear diamond pricing is crucial.
With better transparency in diamond pricing, every market player should be able to price diamond output according to the value they add along the value chain, whether it be polished diamond manufacturing, wholesale trading, jewelry design or retail activity.
MPC™ is currently available for use
Whilst the Mercury Diamond Price Calculator™ is not currently available for public use, I invite you to try Mercury Diamond's MPC™ tool in the coming weeks for a complimentary trial. Simply add the following information in this box:
This information will be provided directly to Mercury Diamond™ and upon receipt, Mercury Diamond™ will provide you with a price report on the diamond as in the example below.
SAMPLE MPC ™ Report (Illustrative)
Going forward, we would like to encourage further information sharing activities to help our industry develop a more robust and transparent approach to diamond pricing, which Mercury Crystal Clear™5 aspires to promote.
The November Price List available for download:
1 The use of the Mercury Diamond Price List™ is subject to the disclaimer provided there in and to the Terms & Conditions of Use found at http://mercurydiamond.com/terms
2 The use of the website and any tools therein is subject to the Terms & Conditions of Use found at http://mercurydiamond.com/terms.
3 The use of the website and any tools therein is subject to the Terms & Conditions of Use found at http://mercurydiamond.com/terms.
4 The use of the website and any tools therein is subject to the Terms & Conditions of Use found at http://mercurydiamond.com/terms.
5 The use of the website and any tools included therein is subject to the Terms & Conditions of Use found at http://mercurydiamond.com/terms
The views expressed here are solely those of the author in his private capacity. None of the information made available here shall constitute in any manner an offer or invitation or promotion to buy or to sell diamonds. No one should act upon any opinion or information in this website (including with respect to diamonds values) without consulting a professional qualified adviser.
Mercury Diamond does not guarantee that the data and information provided via or in connection with the MPC and the MPC Report (the "MPC Information") are accurate, complete, current, real-time or appropriate for your needs and does not guaranty the accuracy of information retrieved from third parties for the purpose of preparing the MPC Information. The MPC Information, which is provided free of charge and for trial purposes, cannot substitute physical examination of specific diamond(s) by an expert.
Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.