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The How and Why of Third Carat Price Increases

The How and Why of Third Carat Price Increases

Polished diamond prices improved in February, inching up 0.08%, according to the Mercury Diamond Global Tracker™ (MDGT™). However the small overall rise actually hid a significant rise in prices of smaller goods, specifically thirds – round polished diamonds weighing 0.30-0.39 carats. Prices for this size range did not simply increase, they rose at a rate the diamond industry has not seen in some time. .

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Compared to January, thirds were up 3.6% on a month-over-month basis , by far outperforming all other key sizes of round-shaped diamonds. In fact, they outperformed all other categories regardless of shape. On a year-over-year basis, the performance of thirds is especially remarkable. While prices of rounds in many weight categories are below where they were a year ago, thirds breached a rise barrier. Even those size categories that sell today for higher prices than they did in February 2017, are just a lower-single digit higher. Thirds, on the other hand are 7.9% higher year-over-year.

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Not All Thirds Are Equal

The rising prices of thirds is not an anomaly. It’s not the result of major shortages and a lack of goods in the market, nor is it the result of unusually high demand in the wholesale market in a small area that pushes up an entire category. It reflects real demand in the market. But before breaking it down, let’s dive a little deeper into the price changes themselves.

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 goods with KLM colors and VS clarities did not change in February compared to January. Together with D color VVS clarity goods, they were the thirds with the worst performance.

Top clarity KLM items had a small price improvement, lower single digit. Then KLM in SI clarities had a little better price increase. A price increase of the same rate was also seen for GH / IF-VVS1 goods. Still better were IJ color goods in all clarities. The top price performers were top color / lower clarity items – DEF/VS-SI, with D color, VS1 clarity 0.30-0.39-carat rounds rising the most, as shown in the following heat map.

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Largely, the goods that had the lowest price increase – and remember, their prices increased, but not by as much the other thirds – are the lower color goods in all clarities, and the top color/top clarity goods. The top-performing goods are those in the top right corner of the heat map: top color and lower clarity 0.30-0.39-carat rounds.

Explaining Price Changes

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. Although pure economic theory has it that as demand rises, prices increase correspondingly, in practice that is not always the case. For example, this past October, demand for polished diamonds rose, but prices did not . The reason was that consumers were unwilling to pay higher prices.

One of the trends in the US consumer market in recent months is 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 these price increases. 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.

Conclusion

Although diamond jewelry retailers are striving sell them as an emotional product, the economics of the diamond industry are very logical. Every trend has an explanation that can be identified. The lesson is that traders need to act based on these market changes, take advantage of them and ride them out while developing new trends that will advance consumer demand and progress.

 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. 

 

 

 

March 2018 Market Report
Diamond Portraits - Barney Barnato

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