IDEX Online Research: Polished Diamond Prices Up Solidly in June

July 03, 07 by Ken Gassman

Global polished diamond prices posted a solid increase in June, 2007, in line with trends established earlier this year. Although there was some unusual short-term weakness in diamond prices in the late spring – specifically during the month of May – it now appears that diamond prices are once again headed higher, according to the IDEX Online Polished Diamond Price Index.

While the U.S. diamond market exhibited some softness in demand in June, demand in diamond markets elsewhere in the world was solid.

Because earlier economic forecasts had been calling for a global slowdown in 2007, our original diamond price forecast called for the possibility of softening prices globally this year. However, many of those economic forecasts have now been revised to reflect a stronger global economy than previously expected, especially outside the U.S. Because diamond demand and economic activity are closely correlated, we now believe that diamond prices are likely to continue their upward bias over the near term.

The “wild card” is the U.S. market, which consumes roughly half of the world’s diamond jewelry by value. If U.S. jewelers have a strong holiday selling season in November and December, diamond prices will rise even further. However, it is still too early to make a reliable prediction about the all-important 2007 holiday selling season.

Based on current sales trends in the U.S., our jewelry sales forecast for the American market remains at +3-4 percent for the year. While this forecast suggests that there will be moderate growth, it is by no means a robust gain for the jewelry industry. In short, uncertainty continues.

June versus May 2007 +0.4%

For the month of June 2007, average global polished prices rose by 0.4 percent versus average diamond prices during May 2007. On an annualized basis, this suggests that prices could rise by 4-5 percent in 2007, a reasonable outlook. The IDEX Polished Diamond Price Index, calculated on the average of daily prices during the month of June, 2007, stood at 112.40 for the month, up from 111.95 in May. Diamond prices showed a slow, but steady upward move during the month, with the IDEX Online Polished Diamond Price Index closing at 112.63 on the final day of June, the highest level during the month. The IDEX Online Polished Diamond Price Index stood at 100 in July 2004. Thus, polished diamond prices have risen just over 12 percent in three years, or about 4 percent per year. There is no reason to believe that diamond price increases will deviate significantly from the long term average during 2007.

June 2007 versus June 2006 +1.9%

On a year-over-year basis, global polished diamond prices rose a robust 1.9 percent in June 2007 versus June 2006. Once again, however, diamond price inflation is lagging overall jewelry industry price inflation. While 2006’s surging jewelry price inflation has finally moderated this year, retail jewelry prices in the U.S. rose by 3 percent in May 2007 (the latest data available); a rate that exceeds annual diamond price inflation. Clearly, most of this increase in retail jewelry prices is being fueled by higher precious metals prices, not gemstone prices. The IDEX Online Polished Diamond Price Index stood at 112.40 for June 2007 versus 110.26 a year ago.

Diamond Prices Show Strength in June

After taking a pause in May, global polished diamond prices continued their upward pace, a trend that began earlier this year. Further, it is important to note that diamond prices rose throughout June, indicating that fundamental demand is alive and well. There are several underlying trends that affected diamond prices in June.

Most polished diamond trading markets outside of the U.S. showed solid demand. The diamond trading markets in Antwerp, Ramat Gan, India, and Hong Kong reflected stronger demand trends during the month of June.

Higher polished diamond prices reflect increased rough prices. So far this year, the DTC has implemented two price increases for rough diamonds. It appears that overall rough prices have risen by at least 5 percent this year, though price hikes have varied significantly by size and quality of the rough gemstones.

The U.S. polished diamond market experienced softness in June due to both short term factors and longer term reasons.

Business at the JCK Las Vegas show was softer than expected, especially with U.S. clients. Economic uncertainty in the U.S. is responsible for American jewelers tightening their buying plans. On the other hand, some vendors at the show reported that overseas buyers helped make up for the sales shortfall to U.S. buyers.

The U.S. diamond and jewelry manufacturing business is moving offshore, especially to regions where labor costs are lower, such as China, Southeast Asia, India, and some of the Caribbean Islands. Therefore, there is less of a need for diamond trading in the U.S. Unfortunately, the softness in the U.S. market appears to reflect a long term trend – the shrinking of the polished diamond trading market.

The graph below summarizes the IDEX Online Polished Diamond Price Index since the beginning of 2006 through June 2007. It is clear that diamond prices showed a solid upward bias in June.