Polished diamond prices increased across the board in April, indicating that the polished market is strengthening. The rise follows weak prices in March and marks a return to the trend of rising polished diamond prices that started in December 2017.
The Mercury Diamond Global Tracker™ (MDGT™) averaged 114.94 in April, up 0.2% over March. Year-over-year, polished diamond prices are still low, down 1.9% compared to April 2017. The Mercury Index rose 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 rise in prices is noteworthy, and not only because it is important for the midstream of the diamond pipeline to finally have some relief. Price increases in three out of four months is already a trend. The decline in March in this context even makes sense. Traders had certain sales expectations early in the month due to the trade fair in Hong Kong. When they did not materialize as expected, the reaction of price decreases was normal. However, the forces that are pushing up prices are steady and were present in March as well.
Polished diamond price increases are driven first and foremost by a rise in global consumer demand, primarily in the US and China, the two largest consumer markets. Another major force is rough diamond supply and cost. Until late last year, manufacturers’ inventories were high. Following the strong consumer demand in December last year, inventories declined to reasonable levels and in January manufacturers became hungry for rough diamonds. Diamond miners, mainly De Beers and ALROSA, supplied rough diamonds, but at a steady pace and largely without raising prices. The rough diamonds that were purchased in January started to make their way into inventories and the trading market as polished diamonds In March. So the rise in supply also played a role in surprising prices.
Consumer demand is pretty specific, which means that items in low demand are being manufactured as little as possible, and items in demand are often in short supply, which also drives prices up. Finally, the ongoing demand for rough diamonds was met by a decline in supply and a rise in prices in April, which in turn drove manufacturers to push for higher prices.
Last month we wrote that the direction that prices will take in April and May is important, because it will signal one of two understandings of the consumer market: if prices continue to decline in the coming months, this would indicate that prices are still too high, and the diamond industry, from polished wholesalers to rough diamond miners, will continue to contract until the new price base is found.
If, however, the price declines in March are temporary, and they start rising again in April and May, we will know that the extended price decline hit rock bottom, and the diamond industry will have a good understanding of what consumers are willing to pay. 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.
Price Index Edges up Again
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 April, the index declined by 1.9% 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 1.9%. We expect this to continue to shrink in the next couple of months.
Historically, polished diamond prices tend to hold strong and even rise in January, as demand from retailers replenishing their store inventories drives prices during shortages. Another trend is a decline in price after the show in Hong Kong. These two cyclical trends are sometimes impacted by unusual market behavior, mainly when demand differs from expectations. When consumer demand in the November-December holiday season is below expectations, prices tend to weaken in January. Similarly, if demand at the Hong Kong show exceeds expectations, prices tend to rise in March.
Despite the trends returning to “normal” – good consumer demand in December, shortages in the wholesale market and the edging down of year-over-year declines – the diamond industry is not yet in the clear. For that to happen, we need to see robust consumer demand throughout the year, and we are still waiting for that.
Since 2016, overall polished diamond prices have only rarely increased on a month-over-month basis. It happened once in 2016 and once in 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, reflecting 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. This trend has changed in recent months, and since the start of the year, we have seen a rise in three of four months.
Prices up 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 April, prices of round diamonds weighing 0.30-0.39-carat (thirds) rose by 0.9%, posting their fifth consecutive month of price increases, reflecting ongoing preference for smaller goods, mainly in the US consumer market, even in mid-range and higher priced jewelry items.
Prices of half-carat rounds rose by 1.5%, and prices of 0.70-0.89-carat rounds were up 1.2% month-over-month. Price of one-carat rounds, the staple diamond item, increased by a sharp 1.6% in April, up by a total of 4.4% in the last six months. Not a wild rise, yet a very solid one. An item that did especially well in April was 3-carat rounds, which posted a 2.5% month-over-month rise in April.
Despite the recent series of price increases, on a year-over-year basis, many key polished diamond categories are still priced lower than they were a year ago, although there are a few exceptions. One such exception are the third-carat rounds. The wide interest in them resulted in their prices being much higher than in April 2017 – up 8%. One-carat rounds, are up only 0.4% year-over-year, 0.5-carat goods are nearly 5% below their levels last year. They are however, closing the gap – in March half carats were down a dramatic 9.6% year-over-year.
The long stretch of price declines seem to be over, at least for now. 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 and 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 prices to start dropping again in the near-term.
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 I, 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 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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