Polished diamond prices have finally turned upwards, after an extended period of declining prices. In January, prices rose across the board with few exceptions, 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 Edges Down
The MDGT™ averaged 114.85 in January, up 0.28% from 114. 52 in December. Prices began inching upward in late December, as demand from American consumers peaked ahead of Christmas. Prices continued to rise in January as American retailers sought to replenish inventories and prepare for Valentine’s Day (February 14). At the same time, retailers in China also stocked up ahead of the Chinese New Year celebrated this week.
The positive news follows an extended period of sinking polished diamond prices. Since May 2014, the index has mainly posted a series of very small monthly declines, some of them even stretching over five consecutive months and at times as many as nine months in a row. Although mainly small month-over-month declines, the cumulative effect is meaningful, totaling 2.4% in the last nine-month period: from April to December 2017.
Polished diamond prices peaked in April 2014, when the index reached 142.3. Since July 2014, the index has exhibited a steady decline with a few notable respites through the 43-month period. On a year-over-year basis, the index declined 2.1% and has been declining steadily on a year-over-year basis for more than three years. The last time the index showed an upward year-over-year trend was in November 2014.
Since its peak in April 2014, the MDGT™ index has fallen 19.3%. In effect, polished diamond prices have eroded by nearly one fifth of their value.
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 January, the index declined by 2.1% year-over-year, a continued deceleration compared to the 2.7% declines in September and October, the 2.6% decline in November, and the 2.4% in December. 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.
Based on our market research, demand for polished diamonds by retailers has finally picked up to a level that allowed some price increases. Prices of polished diamonds did not rise in October or November, but only in mid-December, which is a seasonal trend. Prices did not rise with demand earlier in the year, because consumers were unwilling to pay higher prices, and in turn, retailers were unwilling to pay higher wholesale prices. Consumers dictated prices.
Inventories held by wholesalers and manufacturers in the midstream of the diamond pipeline were high throughout the year. It was only in late December that the upswing in demand resulted in lower inventory levels. This spurred both a drive for rough diamonds, as well as higher prices.
Historically, polished diamond prices tend to hold strong and even rise in January as demand from retailers replenishing their store inventories drive prices at a time of shortages. Despite the trends in the market – good consumer demand in December, shortages in the wholesale market and the edging down of year-over-year declines - we are not yet in the clear. For that to happen, we need to have robust consumer demand throughout the year, which is yet to happen.
Over the past two years, overall polished diamond prices increased only three times on a month-over-month basis, most recently in March 2017. 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.
In 2017, prices were especially weak for a four-month stretch. Between May-August, with very few exceptions, prices fell across the board in every category. That was a period not only of vacations, but also of a slowdown in sales and demand that hurt the diamond industry to the point that it took more than a few companies to the brink.
Prices Rise Across the Board
The MDGT™ index is composed of the price performance of many different diamonds, of many different size ranges, from 1 carat and above. In January, prices of round-shape diamonds weighing up to 5-carats increased by about 1.5% compared to prices in December 2017. Round polished diamonds weighing one carat rose 1.4%, half-carat rounds were up 1.8%, and prices of thirds (0.30-0.39 carats) rose by 1.3%. Among rounds, the only size range that did not post a clear price increase were 10-carats which were virtually flat compared to their price during December 2017.
These changes in the price of rounds continued and strengthened the price trends in December, when prices increased modestly and prices of 2-carat rounds decreased 1.8%.
With all the price increases in the past couple of months, polished diamond prices are largely far from where they were a year ago, and very far from their prices in 2015, 2014 and earlier. With one very small exception, polished diamond prices have not risen on a year-over-year basis since December 2016. The sole increase was a 0.1% rise for 0.70-carats in March 2016. The last clear rise was in December 2016, when thirds, half-carats, and 0.70-carats rose by 2% or more year-over-year.
After all size ranges of rounds were in the red throughout 2017, two size ranges have posted clear year-over-year price improvements in January 2018: thirds (up 2.8% and 3-carats (up 1.1%). Thirds are in strong demand in the US, a trend we expect to see continue in the coming through the first quarter of the year.
Following a period of more than three years, polished diamond prices started to inch upwards. This positive trend reflects consumer demand as well as availability in the market. We believe that the current retail prices reflect what consumers are willing to pay, hence the rise in demand. If the diamond pipeline, from mining to jewelry making, can align itself to these new values, it could serve as a basis to rebuild consumer interest in diamond jewelry and, with time, set it on a growth path.
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 P and 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 currently 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 advisor.
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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.