In March this year, we looked at the one item that posted the greatest price appreciation in the first quarter of the year, thirds (0.30-0.39-carats). With the price fluctuations of polished diamonds in recent months, it is worth examining what happened to this item in the second quarter of the year.
Polished diamond prices were mixed in June, softening 0.7%, according to the Mercury Diamond Global Tracker™ (MDGT™). The changes in polished diamond prices encompassed both good demand for many diamond categories, driven by the results of the JCK Las Vegas trade show, combined with shortages in specific areas, and rising rough diamond prices. At the same time, prices were impacted by a decline in demand for many other items, coupled with a desire by polished diamond traders in the diamond trading centers to reduce inventories and close as many transactions as possible before the summer vacations.
The small decline in the index hid, as always, a wider story. The price declines were seen mainly among the larger goods – 1 carat and above. The size ranges below 1 carat have largely increased in price. The sole item among the smaller goods that did not rise was thirds.
Compared to January, thirds were up 3.6% on a month-over-month basis in February, another 0.3% in March and 0.9% in April, completing a 7.9% run up in prices since December 2017. But then a turnaround took place. In May, prices of thirds declined 0.7% and then in June they lost another 0.9%. It appears that not only did the great run come to an end, but a good chunk of the price increases were lost in the second quarter of 2018.
On a year-over-year basis, the performance of thirds is remarkable, even if we take the recent declines into account. While prices of rounds in many weight categories are below where they were a year ago, thirds breached a rise barrier. Even 1-carat rounds, the staple item of the diamond industry, did not perform as well. Since January of this year, prices of thirds rose every single month on a year-over-year basis. During this six-month period, they were up 2.8% in January, 7.9% in February, and 9.1% in March, all remarkable rises. From there, the year-over-year increases were less spectacular, but still very pronounced. The increases in April, May, and June were 8%, 6.1% and finally, 4.1%, respectively.
Not All Thirds Are Equal
The rising prices of thirds is not an anomaly, nor are the recent declines. They are not due to major shortages and a lack of goods in the market, nor are they the result of unusually high demand in the wholesale market in a small area that pushes up an entire category. The price increases reflect real demand in the consumer market.
The price index of round 0.30-0.39 carat diamonds is composed of diamonds in the full color and clarity range, triple excellent, no fluorescence. Within that range of goods is a variety of price behaviors. The price of SI clarity in HIJ colors, and VVS1 / E increased well in June. Generally, VS2-SI2 clarity thirds in HIJ colors, which are classic American goods, did well. So did E colors across the board.
Conversely, IF clarity round thirds in all colors with the exception of E, did not do well and their prices declined in June compared to May. VS clarities in lower colors, KLM, suffered from price declines too. Most other 0.30-0.39-carat round categories were unchanged, as shown in the following heat map.
Largely, staple American goods did well, while most of the other goods failed to perform as well.
Explaining Price Changes
So why did the top performer, the one solid item that by far outperformed all other key sizes of round-shaped diamonds, start declining in May? And why were the month-over-month declines so sharp? More importantly, how is this tied to the US market?
One of the trends in the US consumer market in the past year has been a shift to smaller size diamonds. This took the form of designs that include several small diamonds becoming more popular at the expense of single diamond designs (solitaires) set with larger diamonds. In addition, there is growing interest in well-designed jewelry. The result of consumers preferring to spend less, coupled with these design trends, is largely what is generating the price increases of GHI color, VS-SI clarity third carats. The combination of designs that need to look good, but can easily hide a diamond’s imperfections, is what is boosting prices of top color, SI clarity round-shape diamonds.
Polished diamond prices are largely influenced by consumer purchases, both in terms of volume, which determines demand, and in terms of willingness to pay the price. The recent drive for these goods pushed up prices in almost all categories of thirds. However in the past few years, consumers have shown less of an interest in diamonds, partially because of their high prices. That drove interest in smaller diamonds and, only when prices of polished diamonds were low enough, did demand pick up. With the recent 7.9% cumulative price increases of thirds, once again buyers started to stay away from them. The one area where prices continued to improve was limited to the very heart of demand – HIJ/VS2-SI2.
As said here before, although diamond jewelry retailers are striving to sell diamonds as an emotional product, the economics of the diamond industry are still at play among consumers. The lesson is that traders need to act based on these consumer market changes. If an item becomes too pricy, consumers will move to the next item, be it a smaller diamond, lower color, or no diamond at all. To create a sustainable demand among consumers, the industry – traders and jewelry brands alike – need to develop products, build desire, and create trends that will last, while all along keeping an eye on the bottom line – costs and price.
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.