IDEX Online Research: Global Diamond Prices Continue to Soften in September
October 03, 06
Worldwide polished diamond prices fell 1% in September 2006 versus the same month in 2005, according to the IDEX Online Polished Diamond Price Index. This was the second consecutive month that prices have fallen from the same month a year ago.
September’s diamond price decline also represents the twelfth consecutive month of weakening diamond prices. Diamond demand peaked in the Fall of 2005, pushing prices up sharply. Since then, diamond demand has softened, and price increases have been more modest each subsequent month, until the Summer of 2006 when prices began falling versus the same month last year.
| Polished Diamond Price Trends |
On a month-over-month basis, diamond prices fell marginally in September by 0.1% from August. While this is a worrisome trend because it does not bode well for the upcoming 2006 holiday selling season, there are indications that wholesale diamond demand is picking up.
While polished diamond prices have fallen in price over the past twelve months, rough diamond prices have steadily risen, even after adjusting for a modest price decrease earlier this year. This is creating a financial squeeze for diamond cutters, polishers, and others in the diamond supply pipeline, and will ultimately lead to the demise of some of the financially weak producers.
Diamond Prices Under Pressure Due to Several Factors
As a result of softening of global diamond demand, polished diamond prices have retreated from year-ago levels. There are several factors which are putting pressure on diamond prices, including the following:
- Market uncertainty – Near term, retail jewelers have cut back on their orders in the face of an uncertain 2006 holiday selling season. In the U.S. market, which accounts for about 50% of the annual consumption (by value) of worldwide diamond demand, high energy prices and soaring consumer debt levels have led shoppers to closely monitor their expenditures for discretionary items. While jewelry demand remains relatively robust – in part due to inflationary prices related to higher gold, silver, and platinum costs – there is an uneasiness among jewelers about the upcoming holiday sales period.
- Slowing global economy – Consensus economic forecasts call for slower economic growth in 2007. There is a very high correlation between jewelry demand and economic growth. As a result, demand throughout the entire jewelry and diamond pipeline has softened.
- High diamond industry debt levels – With diamond industry debt levels at record heights, banks are less willing to make further loans, especially with the prospect of a slowing global economy. Therefore, many jewelry and diamond suppliers are attempting to convert their inventory to cash at any price.
The graph below summarizes the IDEX Online Polished Diamond Price Index since the beginning of 2005.
| IDEX Polished Price Index |
Smaller Stone Prices Continue to Weaken; Larger Stone Prices Up
For the past several months, demand for diamonds in the 0.50 to 1.00 carat range has weakened. Last month, this weakness extended upward to diamonds of 2.00 carats and smaller. While prices of larger diamonds – 3.00 to 5.00 carats – remain above last year’s levels, prices in September did not show the same large gains as in prior months. For example, 4.00 carat polished diamond prices rose by nearly 20% year-over-year in August; in September, they were up less than 16% over the same period in 2005.
The graph below summarizes year-over-year price trends by major diamond sizes. The diamond sizes shown on this graph represent about 30% of the total global diamond market by value.
| Polished Diamond Price Trends by Size |
Consumer Market Sales Should Hold Through Holiday Season
Officially, the 2006 holiday selling season in the U.S. begins the day after Thanksgiving. However, someone forgot to tell shopkeepers, because there are signs of the season throughout the malls.
Most forecasters are calling for a mid-single digit sales gain for all retail categories. The IDEX Online preliminary sales forecast for the U.S. jewelry industry calls for jewelry sales to rise by about 6% or so, with diamond sales up in the 6% range. In past years, diamond sales have risen faster than other jewelry categories. However, due to inflationary pricing of gold, platinum, and other precious metals, retail prices for those goods are up while diamond prices have remained relatively flat. Thus, on a unit basis, diamond jewelry sales will likely show a greater increase than other categories, but on a dollar basis, the increase in diamond jewelry sales will probably be equal to other jewelry categories.
The IDEX Online Diamond Price Index
The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices of the global diamond industry. The IDEX Online Diamond Price Index objectively reflects price trends as they happen. The Diamond Index and Diamond Drivers were formulated following comprehensive research and analysis of the IDEX Online inventory database, aggregated since 2001. Research and development were conducted in cooperation with Dr. Avi Wohl, Senior Lecturer of Finance at the Faculty of Management, Tel Aviv University, Israel.
Additional information is available from IDEX Online Research. The e-mail address is diamondprices at idexonline dot com.