Polished diamond prices remained flat overall in October for the third 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 114.79 in October, a negligible decline from its 114.80 during September. Polished diamond prices peaked in May 2014, when the index reached 142.3, and have been steadily declining since July 2014, a 40-month stretch. On a year-over-year basis, overall polished diamond prices have been declining for 35 months. 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 19.3%.
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 is aimed at serving the wholesale market first and foremost.
In October, polished diamond prices declined by 2.7% year-over-year, the same as in September. Although we have seen stability in prices in the last three months, the year-over-year rate of decline shows just how deeply prices fell during the past year before stabilizing. In recent months, overall polished diamond prices have been declining at a growing rate on a year-over-year basis. This trend started in June, and prices have been declining at a faster rate every month since then, as the following graph shows. Prior to June, the rate of price declines since April moderated, and averaged just 0.5% on a monthly basis. Since June, the year-over-year rate of decline increased to 0.6%, and then to 0.8% in July, 1.7% in August, and a worrying 2.7% in September.
Based on our research, the easing in polished diamond price declines stems from a decline in inventory levels after an extended period of oversupply of goods, as jewelry manufacturers increased work ahead of the November-December holiday. This was coupled with better-than-expected demand at the Hong Kong trade fair. In addition, the Indian diamond sector was largely away for the Diwali holiday, during which factories were closed, further drying supply.
Historically, polished diamond prices are little changed in October from September, and 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. That they weren’t is an indication that retailers are somewhat cautious at this point.
During the past two years, overall polished diamond prices increased only three times on a month-over-month basis, most recently during 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. The near zero month-over-month overall change during September and October – down just 0.01% – is a positive development.
Prices of Staple Goods Decline
The MDGT™ index is composed of the price performances of many different diamonds, of many different size ranges. During October, prices of rounds weighing two carats and below declined by 0.3% to as much as 4.9%, as shown in the following graph. On average, the price of these goods fell by 2%. For thirds (0.30-0.39 carat), the decline was a change from the recent increase in prices. Other items have declined for a while despite some increases in September.
Large round polished diamonds weighing three carats and above did well during October against rising demand. These goods are bread-and-butter items, which makes the declines disquieting. After all, demand from retailers should have been good enough to help maintain prices. The strongest rise was for 3-carats, which rose 1.2% during the month.
As in September, on a year-over-year basis every size range declined in price, most in the high to mid-single digits. The most notable price declines were for halves, down 16.1% year-over-year, and 0.70-0.89- carat rounds, which fell 13%. The price of 1-carat rounds fell nearly 10%.
As stated last month, the continued long-term weakness in polished diamond prices is an ongoing issue. The improved performance of several size ranges is good news, and the overall flat price performance is an indication that prices may have reached their bottom. The weakness of rounds from 0.30 carats to 2 carats, the heart of the business, is reason for concern. However, the real test is during the holiday season in November and December. The expectation is that prices will rise during the two last months of the year. If they don’t, that would be very harmful for the entire diamond pipeline.
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 research in the market, 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 P and in the 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; by applying their manufacturing costs, they can also “reverse engineer” to calculate the cost of rough diamonds.
Currently, we 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 provide 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.
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.
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