In recent years diamond industry professionals have raised concerns about the diamond benchmark lists currently available in the market. For example, on several occasions this year for example, benchmark lists have published increases in prices at times where diamonds have continued transacting at low prices
I wish to highlight in more details how the Mercury Diamond Price List™, a transaction-based price list which was made available for the first time last month, can be used in practice and can benefit the industry by providing more transparency to diamond pricing.
I believe that diamond price lists should be based on actual transactions, whether Mercury’s List or other transaction-based Lists, as an alternative to benchmark lists that are based on asking prices or other proxies which do not sufficiently reflect the prices at which polished diamonds are sold.
Objectives and limits of current polished diamond benchmark lists
I feel that many of the critiques towards the leading benchmark lists are not justified in as much as these lists are being criticized for not doing something that they were never meant to be in the first place.
Existing benchmark lists do not provide accurate polished diamond prices because this is not what they were established to do. Instead, they were developed to provide some form of benchmark for polished diamond prices to be used as a reference point for negotiation between sellers and buyers.
This should come as no surprise considering that these lists are not derived from actual transaction prices. Benchmark's lists appear to be based largely on asking prices, some more data-driven than others. But, as we know, there can be large differences between asking prices and real transaction prices.
Moreover, these lists do not take into account additional factors which affect a diamond pricing beyond the 4Cs, namely comments and other irregularities, As we know, these factors can significantly affect diamond prices.
In my view, these lists provide polished diamond benchmarks rather than polished diamond prices.
Polished diamond pricing, on the other hand has always been set by diamonds industry players.
The primary benefit of the polished diamond benchmark list which has dominated the industry, has been to offer a helpful price points of reference to facilitate communication between diamond industry players, who would quote prices as discounted to that list.
It has also provided a benchmark to jewelers and retailers selling polished diamonds to end consumers.
The problem starts when there is an expectation or assumption in the market for such a list to provide transactional market prices and trends. For example, during the current year various price lists shown an upward trend in market prices at times where transaction prices have in reality almost stagnated, if not dropped.
This can have a broad effect on the market when for example rough diamond sellers set prices in line with these lists, while in reality transaction prices are different. A fragmented midstream with weak purchasing power may in turn be forced to buy rough diamonds at high prices that do not necessarily correspond with reality, and as a result not be able to sell the polished product onwards with a reasonable margin.
It seems that there is currently no list available in the market that provides transaction-based wholesale prices of polished diamonds.
The Mercury Diamond Price List™
Last month I presented, the Mercury Diamond™ monthly natural diamond Polished Price List.
This wholesale price list for polished diamonds was developed by Mercury Diamond, a diamond pricing consultancy which I founded. This List is ready for immediate use1.
• It has more than 18,000 polished diamond categories across the 4Cs, covering diamonds weighing up to 30 carats, with clarities ranging from Flawless to I3 in colors from D to P and in the various shapes.
• It provides the wholesale price of a “top stone” within the 4Cs, i.e. the price of a polished stone that has no comments or other irregularities.
• Mercury Diamond™ has a separate table with discounts and premiums for over 400 types of irregularities. This table, together with the Mercury Diamond Price List™, can therefore provide the wholesale market price of any specific diamond.
Several factors ensure that the Mercury Diamond Price List™ can operate at precision:
First, it is based on real transaction prices and other hard market data. It thereby avoids the possible disconnect which can occur between asking price and other information supplied by diamond players, and the actual prices which diamonds are traded.
Second, the Mercury Diamond™ proprietary table of discounts and premiums for irregularities means that when it collects transaction data for individual stones, it can factor in the impact of irregularities and net it off the price of a top stone shown on the Mercury Diamond Price List.
Third, it can complement any lack of market data through a proprietary process of association, based on the established industry principle that price changes of certain diamonds are closely linked to price changes of similar stones.
The Mercury Diamond Price List™ is fully independent and has been validated by one of the Big Four accounting firms, which regularly reviews Mercury Crystal Clear®2 , which is the pricing system for both rough and polished diamonds from which this List is derived and is in the process of obtaining a patent pending in the United States.
A selected number of independent polished diamond valuators review each monthly List before it is published.
How the Mercury Diamond Price List™ Can Be Used
I believe that with Mercury's list, a manufacturers will better able to determine a maximum purchase price for rough diamonds by following a simple equation: the fair price per carat of a rough diamond should equal the price of its polished value (using the Mercury Diamond Price List™) divided by the number of carats of that rough diamond, minus polishing and other costs and margin.
So for example if the Mercury Diamond Price List™ indicates that the price of a 4-carat sawable rough diamond that will yield two polished stones of one carat each, is worth $20,000 in total when polished (excluding any irregularities) and assuming a 15% cost and margin, the maximum price that should be paid for the rough diamond is about $4,250 per carat.
The same would apply for a 4-carat rough stone that would yield 1.52 carats (color E, clarity IF) when polished:
1.52 x $13,500 (i.e. the price per carat for that polished stone as per the table below)
= $20,520 which is the market price of the diamond when polished.
Then, $20,520 divided by 4.25 carats (total weight of the rough diamond) minus 15% = $4,104 per carat, which is the price per carat at which it would be profitable to buy the rough diamond.
Mercury Polished Price list for 1-1.99 carats (October 2015)
On a broader scale, using such a list more widely in the industry, will allow manufacturers to act as gatekeepers and keep rough diamond prices in touch with reality. It would for example help prevent a situation where some midstream players are being pushed to buy rough diamonds at prices that are not on par with their equivalent polished transaction prices.
More transparency on transaction prices will help to attribute profits more correctly, according to the value each player add along the diamond value chain, whether it is polished diamond manufacturing, wholesale trading, jewelry designing or retail activity.
Thus, when applied across the whole pipeline, such List could in fact help ease the pressure overall and allow companies to operate more sustainably.
For instance, the margin challenges faced by some manufacturers is partly the very consequence of a lack of transparency in diamond pricing which has kept the prices of rough diamonds artificially high. A more transparent pricing system, as per my example above, would help midstream players pay more realistic prices for rough diamonds and sell on their polished product at sustainable margins.
Similarly, a more accurate price list that is based on transaction prices over the past month where value addition is known across the diamond pipeline would, short of a more complete spot and futures markets for diamonds, provide greater transparency and certainty to end consumers about the true value of their diamond. This in turn would help stimulate demand and thereby further help diamond companies to operate more sustainably.
Such a List is only the beginning for more accurate and clear diamond pricing.
Mercury Diamond™ has developed a range of tools derived from the Mercury Diamond Price List™ which can be used for various applications. For example, it has developed tools to evaluate entire parcels of rough diamonds across the run-of-mine.
The Mercury Diamond Price List™, together with the other Mercury Diamond™ tools, can also apply in other way that could help strengthen our industry, including for:
• Retailers, jewelers and other businesses pricing their inventories.
• Banks or other credit providers assessing collateral.
• Companies and financial institutions purchasing and selling diamonds for wealth preservation.
The Mercury Diamond Price List™ for up to 30 Carats is Available this Month
A few weeks ago we delivered the Mercury Diamond Price List™ for up to 3 carats covering the October period. Attached is the Mercury Diamond Price List™ for up to 30 carats (including clarity up to SI2 and color up to M) covering that same period.
We invite you to download the Mercury Diamond Price List™ and use it as part of your activities3, with the hope that you consider using it on a regular basis. A new price list is published on the 10th of every month. Our next price list will be published on December 10 covering the month of November.
1. The use of the Mercury Diamond Price List™ is subject to the Terms & Conditions of Use found at http://mercurydiamond.com/terms
2. The use of the Mercury Diamond Price List™ is subject to the Terms & Conditions of Usefound at http://mercurydiamond.com/terms
3. The use of the Mercury Diamond Price List™ is subject to the Terms & Conditions of Use found at http://mercurydiamond.com/terms
The views expressed here are solely those of the author in his private capacity. None of the information made available here shall constitute in any manner an offer or invitation or promotion to buy or to sell diamonds. No one should act upon any opinion or information in this website (including with respect to diamonds values) without consulting a professional qualified adviser.
The Mercury Diamond Price List (the "List") is the exclusive property of Mercury Diamond ("Mercury") and not of Mr. Ehud Laniado who assumes no liability in connection with the List and any of Mercury's publications. Readers are advised to review all relevant information provided by Mercury in connection with the List including any disclaimers. Investing or trading in diamonds is a high risk activity and you should therefore become aware of the risks beforehand and consult with an independent and suitably licensed advisor.