Prices of the most popular polished diamonds declined once again in November, contrary to what should be a period of stable, if not rising prices. Overall, polished diamond prices remained flat in November for the fourth consecutive month, according to the Mercury Diamond Global Tracker™ (MDGT™), an index of polished diamond transaction prices. The steady prices, following an extended period of price declines, are a welcome sign of stability for the global diamond industry.
Price Index Flat
The MDGT™ stood at 114.71 in November, a very small decline from 114.79 in October. The index has posted a series of very small declines since April, cumulatively reaching 2.2% during the period. Polished diamond prices peaked in May 2014, when the index reached 142.3, and have shown a steady decline since July 2014, a 41-month stretch. On a year-over-year basis, the index declined 2.6%, completing a three-year stretch of year-over-year declines. The last time the index showed an upward year-over-year trend was in November 2014.
During the 40-month period of declining polished diamond prices, the MDGT™ index fell 19.4%.
MDGT™ is based on the transaction prices of diamonds weighing 1-30 carats, collected and used for the Mercury Diamond™ Price List. It provides wholesale polished diamond prices based on transaction prices in the wholesale market, and its primary purpose is to serve the wholesale market.
In November the index declined by 2.6% year-over-year, a deceleration compared to the 2.7% declines in September and October. The year-over-year declines, although milder than those experienced in 2016 and 2015, are still worrying as a cumulative trend of ongoing sliding prices.
Our research shows that there are demands in the market and there is a demand for goods by retailers seeking to fulfil orders, however this is not resulting in rising prices, an unusual market behavior. Why are prices not rising along with demand? First and foremost, because consumers are unwilling to pay higher prices, and in response, retailers that are unable to charge more are unwilling to pay higher wholesale prices. This is resonating up the diamond pipeline with consumers dictating prices.
Second, inventories held by wholesalers and manufacturers in the midstream of the diamond pipeline are high in some key areas. For example, inventories of one-carat rounds, from D down to J, and in the full range of clarities, increased, despite the fact this is a period of time when inventories typically decline. We know that there is demand for one-carat rounds, however it looks like demand is slower than supply. This means that wholesalers did not have the bargaining power to raise prices. At the same time, it is important to remember that demand rises sharply in December, and these high inventory levels may drop by the end of the year.
Historically, polished diamond prices show very little change in October, and they tend to rise in November, as demand from retailers rises with the holiday season. This cyclical behavior peaks in December, when prices of polished diamonds rise. The level of polished price increases in December is proportionate to the robustness of consumer demand for diamond jewelry. That said, prices should have been stronger in October. The fact that they weren’t is an indication that retailers are somewhat cautious at this point. Considering that prices of polished diamonds did not rise in November, means the market should be cautious.
Over the past two years, overall polished diamond prices increased only three times on a month-over-month basis, most recently in March. The month-over-month declines have become the norm in recent years, although price changes are more volatile on a month-over-month basis, which reflects seasonal changes neutralized in year-over-year comparisons.
Prices of Staple Goods Keep Declining
The MDGT™ index is composed of the price performance of many different diamonds, of many different size ranges, from 1 carat and above. In November, prices of many diamonds weighing one carat or more increased by a low single digit. Polished diamonds weighing two carats were up by 2.2% in November compared to October, and prices of two carats rose by 2%, while 5-carat goods declined by 0.9%.
Goods smaller than one carat suffered from strong price declines on a month-over-month basis. Thirds (0.30-0.39 carat) fell by 2.2%, marking the second month in a row of declines after a couple months of rising prices. Prices of half carats declined 1.7% and the prices of polished diamonds in the 0.70-0.89 carat range lost 2.3% in November.
Since August of this year and again this past November, on a year-over-year basis, every size range declined in price. Some are just marginally below their prices a year ago, such as 3 carats, which declined 0.1%. Others are far below their past price, such as half-carats, which lost over 17% of their value over the past year.
The continued long-term weakness of polished diamond prices is an ongoing issue. We have stressed this repeatedly. The improved performance of several size ranges is good news; however, the decline in prices of smaller goods is not positive, especially as those goods are the heart of the diamond industry’s manufacturing activity and the bulk of the work. Last month, we said that the real test for demand and price resiliency will be during the holiday season in November and December. The expectation was that prices would rise in the last two months of the year. So far, we are not seeing a very good holiday season from a price perspective. If this continues into December, the diamond pipeline may need to reconsider its approach to the consumer market and make some significant changes to improve consumer demand.
About MDGT™ and the Mercury Diamond™ Price List
We have developed a system that collects transaction prices from a wide range of manufacturers, traders and retailers. These many monthly transactions are augmented by constant market research, which backs, double checks, verifies and completes the transaction data. The system covers more than 18,000 polished diamond categories across the 4Cs, including polished diamonds weighing up to 30 carats with clarities ranging from Flawless to I3, in colors from D to Pand in various shapes.
The price list provides a price for a top stone without any irregularities. There is a separate table of irregularities, which provides the necessary discount or premium to find the exact current price of any particular diamond.
This polished diamond pricing system was reviewed and validated by one of the Big 4 accounting firms, and that firm continues to audit the price list monthly. The pricing system is in the process of obtaining a patent in the United States. Traders will not only find the current transaction price of each diamond, but by applying their manufacturing costs, they can also “reverse engineer” to calculate the cost of rough diamonds.
We currently publish the price list monthly, on the tenth of every month. It is also available in the form of a ticker. Take a look at this important alternative, which has the potential to contribute to an important change in the market. Please download the list and test it. We offer it to you with the hope that you will consider using it regularly.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.
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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.