Prices of most round-shaped polished diamonds increased in May, according to the Mercury Diamond Global Tracker™ (MDGT™). The few exceptions were the larger goods, 5-carats and above, and the thirds (0.30-0.39 carats). The rising prices continue the trend of firming up of the polished market. With the exception of a small decline in March, polished diamond prices have improved almost across the board in every month in the past six months. This is clearly a trend.
MDGT™ averaged 114.94 in May, flat compared to April. Year-over-year, polished diamond prices are still low, down 1.7% compared to May 2017. The Mercury Index was up 0.28% in January and 0.08% in February, but declined 0.2% in March. Prior to that, the Mercury Index mainly declined for several years. 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 in the 44-month period.
The reason the MDGT™ was flat, although most of the key size/shape categories increased, is attributable to the structure of the index. MDGT™ is a weighted average index. Diamonds weighing 4-carats and larger represent 40% of the index. The prices of these goods have been steady at best or declined over the past month. In addition, shapes other than rounds, which are also represented in the index, have not seen meaningful price changes, resulting in a flat index.
The rise in price of basic goods – commonly referred to in the diamond industry as ‘ABC goods’ – is the result of a combination of circumstances: a trade show and the consumer market. The world’s largest jewelry fair JCK Las Vegas took place on June 1-5, and alongside were also a few additional jewelry and jewelry-related trade fairs that are relatively large: Couture, Luxury, and AGTA, as well as a few smaller ones. The large gathering leads polished diamond wholesalers to gather goods in the market in the period leading up to the shows. This trend inevitably leads to a rise in polished diamond prices as goods become scarce. In short, what this means is that a price increase in May is usually a seasonal trend.
However, not only a seasonal trend is at play here. The consumer market continues to do fairly well, responding to lower prices compared to the much higher prices in the past few years. This is the important trend to pay attention too, as it reflects a departure from the downward trend in the past few years. With six months of mostly rising prices, this is an indication that consumers have warmed up to diamond jewelry again. This change is most notable in the US, where the weakness was most pronounced. In addition, good demand from the Chinese consumer market adds to the backwind from which prices are currently benefitting.
These two main price drivers are backed by ongoing and steady increases in rough diamond prices by the main diamond producers. Add to this the readjustments to diamond inventories in the midstream of the diamond pipeline.
Last month we wrote that the direction prices will take is important, because it will signal one of two understandings of the consumer market. We now know that the extended price decline hit rock bottom, and the diamond industry now has a good understanding of what consumers are willing to pay for polished diamonds. From this point, prices are expected to remain relatively flat or increase slightly in response to a combination of rising consumer demand against shortages in the midstream of the diamond pipeline.
The big question is for how long this price trend will continue. Ongoing price increases will obviously not go on forever. At some point, demand will weaken, as it crosses the price threshold consumers are willing to pay.
Price Index Flat
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 May, the index declined by 1.7% year-over-year. Since October 2017, the index has exhibited a continued deceleration in the year-over-year declines. The one exception was in March, when prices temporarily changed direction.
Although the trend of year-over-year price declines started in December 2014 and has been long lasting, the deep declines of 2015 are behind us for now. The declines have since tapered down, mainly in 2016, and continuing into mid-2017. However, in September and October 2017, we saw the gap expand from 0.5-1% to about 2.7%, which has now narrowed to 1.7%. We expect this to continue to shrink in the coming few months.
In 2016 and 2017, overall polished diamond prices have only rarely increased on a month-over-month basis. It happened once in 2016 and once in 2017. 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. This trend has changed in recent months, and since the start of 2018, we have seen a rise over four of five months. It is worth noting that price changes are more volatile on a month-over-month basis, reflecting seasonal changes neutralized in year-over-year comparisons.
Prices Up for Most Key Diamond Size Ranges
The MDGT™ index is composed of the price performance of many different diamonds, of many different size ranges, from 1 carat and above. In May, prices of round diamonds weighing 0.30-0.39 carats (thirds) declined by 0.7%, ending five months of consecutive monthly price increases. The price increases were driven by a year-long preference for smaller goods, mainly in the US consumer market, even in mid-range and higher priced jewelry items. During this five-month period, prices increased on average by 7.9%. The decline in May possibly reflects a response to this strong price hike.
The most notable price increase was seen for 2-carat goods, posting a rise of 2.4% in May. Prices of 3-carat rounds followed with a 2.2% price increase, while prices of 0.70-0.89-carats rose by 1.7% month-over-month. Prices of one-carat rounds, the staple diamond item, increased by 1.3% in May, continuing the higher prices we have seen since November 2017. The larger 5-carat and 10-carat rounds posted price declines.
Despite the recent series of price increases, on a year-over-year basis, several key polished diamond categories are still priced lower than they were a year ago. One of these are half-carat rounds, which are still lagging more than 2% compared to their average price a year ago. Not surprising, five- and 10-carat rounds are also below their trading prices in May 2017.
Among the polished diamonds goods that have closed the gap are the third-carat rounds. The price increases of the past months have placed thirds at 6.1% above their price a year ago and 1-carat rounds are up 2% year-over-year. At the same time, 0.5-carat goods are 2.6% below their levels last year. They are however, closing the gap – in April half carats were down 5%, and in March a dramatic 9.6% year-over-year.
The long stretch of price declines is over. For several years, retailers in the US complained that polished diamond prices were too high and slowly shifted some of their offerings to other jewelry items, such as gold, semi-precious and other jewelry items. The ongoing pressure resulted in a decline in prices, returning to their late 2009 levels. At the time, prices started to climb. Some will claim that they got out of control. It is reasonable to expect prices to remain around current levels for a while. It is less reasonable to expect them to start dropping again in the near-term.
At the same time, it is important to keep an eye on what happens with diamond-related items. Following De Beers’ recent announcement that it will offer branded jewelry set with lab-grown diamonds (LGD). If the move results in a consumer drift towards low cost LGD, it may result in a decline in polished diamond prices. The likelihood of such an outcome is remote, yet important to keep in mind.
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.
Changes in Polished Diamond Demand – May 2018
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.