Upon reviewing the Mercury Diamond Index for Polished Diamond Prices below, you will see that prices are currently around the same level as they were in early 2010. Polished prices demonstrated an overall increase and the index rose from 116.7 in February to 121.5 in May of 2010. Prices then fell back a little only to increase again, and the year-end index reached 129.3. From start to end, prices increased by an average of 17.6%.
In a departure from other shows over the past year and more, the September show in Hong Kong saw a decent amount of business, and many exhibiting diamond firms reported a rise in transactions compared to previous shows. There is a good reason for the change, and it does not necessarily serve as a positive sign for the diamond industry.
We know that prices of smaller polished diamond goods, 0.30-0.99 carats, have been rising lately in response to improved demand. The rough diamonds that yield them weigh 0.60-2 carats. We also know that the increase in demand is mainly for rounds, at the expense of other shaped diamonds. Further, the demand is coming mostly from the US consumer market, which is mainly interested in HIJ color, SI-I clarity goods.
During De Beers’ Sight last week, the company raised prices by 2-4% on average, according to traders. Sightholders that chose to sell rough diamonds from the Sight reportedly sold them for higher premiums. Premiums on 4 grainers (1 carat rough diamonds) and larger are up to a reported 8%-15%. Some goods are selling for list price, or up to 3% above list price. With few exceptions, the rough diamond market is generally strong - some even described it as “hot”. The exceptions are boxes of -7 rough diamonds and the cheap goods, which are hard, if not impossible, to move. Considering that consumer demand for polished diamonds is not rising, we are faced with a mystery: what is fueling demand for rough diamonds?
Excess capacity of manufacturing infrastructure, plus excess capacity of manufacturing, plus excess capacity of financing, minus production demand, equals price of production decline! This is the rule we need to remember, as it not only applies to today’s diamond market - it is also a rule to live by.
As stated here time and again, an excess of bank financing leads to both excess in rough diamond buying and excess in manufacturing capacity. The combination of these with apparently a lack of caution on the part of several manufacturers led us to where we are today.