IDEX Online Research: December 2007 Polished Diamond Prices Up Sharply
January 03, 08
Global polished diamond prices rose sharply in December 2007, according to the IDEX Online Polished Diamond Price Index. Driven by price surges of large polished gemstones in the 3.0-to-5.0 carat size range, polished diamond prices in December 2007 were up nearly 5 percent over the same month a year ago, and polished diamond prices rose by 1.2 percent in December over November 2007, the largest month-to-month gain of the year. The outlook for polished diamond prices is bullish. While the U.S. jewelry market appears to be soft, other regions of the world are posting solid sales gains for diamond jewelry, especially for larger carat, high quality goods. As long as the demand for diamonds and diamond jewelry remains strong, prices will likely rise. The graph below summarizes the IDEX Online Polished Diamond Price Index from the beginning of 2006 through December 2007. This graph represents the composite average prices of all diamonds traded at the wholesale level. It is clear that diamond prices are posting solid, consistent gains, especially during December 2007.
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December 2007 versus November 2007: +1.2 percent
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The graph below summarizes month-to-month changes in global diamond prices for the past twelve months, since the beginning of 2007. With the exception of February, May and the September-October period, polished diamond prices have shown solid gains during almost every month of 2007.
The percentage change comparisons on the graph are based on the daily average prices during the month of all sizes and qualities of polished diamonds. The percentage change shown is based on each month’s average price versus the prior month’s average price (e.g. December 2007 versus December 2007).
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If diamond prices continue to increase at this annualized rate, it would be one of the larger annual price increases in the past two decades for polished diamonds. We don’t think this diamond price inflation rate is sustainable, even though rough diamond prices are rising at a greater pace. The diamond industry remains too fragmented for anyone – or any group – to hold pricing power similar to the tight-knit community of rough diamond suppliers.
Further, jewelry retailers are still feeling margin pressure from rising precious metals prices over the past three years. Near term uncertainty among U.S. retailers will cause retailers to resist higher polished diamond prices, though there appears to be a move by U.S. jewelry merchants to implement higher retail prices in early 2008. The IDEX Online Polished Diamond Price Index stood at 115.48 in December 2007 versus 110.17 in December a year ago.
After some softening earlier in the spring, monthly polished diamond prices have continued to show solid gains on a year-to-year basis, compared to the same month a year ago. The graph below summarizes year-to-year monthly polished diamond prices for the global market since the beginning of 2007. Clearly, diamond prices reflect a solid uptrend.
Comparisons are based on the daily average prices during the month versus the same month a year ago (e.g. December 2007 versus December 2006). The year-to-year comparison takes into account the seasonality of polished diamond demand and prices.
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Polished Diamond Prices Strong Throughout the Month of December
Polished prices rose consistently through the month of December. There were two price spikes: one early in the month and one mid-month. Sluggish trading at the end of the month yielded some modest softness in prices, but this is a momentary seasonal pause which often occurs.
Diamond Demand Strong for Large Sizes
Retail jewelers have been saying for some time that their customers want larger, better quality diamonds. Recent price trends for polished diamonds confirm this trend. Large stones showed a dramatic price increase in December, based on month-over-month comparisons, while prices of diamonds in the one-to-two carat range were up only modestly. As in past months, diamonds below one-half carat in size posted lower prices.
The graph below summarizes the price changes for key sizes of polished diamonds on a month-over-month basis: December 2007 versus November 2007. These seven stone sizes represent about 33 percent of the trading market by value.
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On a year-to-year comparison, polished diamond prices showed an even greater bias: prices for large stones in the four-to-five carat range rose much more sharply while prices of stones two-carat and smaller posted only a small gain. Did four-carat polished diamonds really rise by 45 percent year-over-year? We’ve checked and re-checked our numbers, and we have confirmed our price comparisons.
The graph below summarizes polished diamond prices by key sizes on a year-over-year basis: December 2007 versus December 2006. These seven sizes represent about one-third of the market, by aggregate value.
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Long Term Trends Confirm Sharp Price Increases in Large Polished Diamonds
The graph below summarizes polished diamond price changes over the three-year period 2005-2007. Over the three-year period, the price of all polished diamonds has risen by about 11 percent. This is well below the estimated 15-17 percent inflation rate of rough diamonds, based on the “official” price movement from 2005 through 2007 (excluding box premiums and discounts).
The seven polished diamond sizes shown on the graph represent about one-third of the total polished diamond trading market by value. As is clear, prices of three-carat and larger polished diamonds have been rising over the long term.
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Forecast: Polished Diamond Prices Likely to Continue to Rise
Economists’ forecasts call for the global economy to remain reasonably healthy, though there could be some pockets of weak economic activity in some regions of the world such as the U.S. Overall, though, forecasters are now suggesting that the Asian, Indian and European economies will post markedly strong growth.
In the U.S., various economic forecasts are calling for the chance of a recession to be between 25 percent and 50 percent in 2008. While the U.S. market purchases roughly half of all diamonds and diamond jewelry (by value) sold in the world, other geographic regions – especially emerging economies such as India and China – are expected to post very strong growth. All in all, economic growth globally should remain on trend line, with global GDP up just over 3 percent in 2008.
The same two macro factors that have affected diamond prices in prior months will continue to have an impact on diamond prices in the near term. First, rough diamond prices are rising at a pace faster than polished diamond prices. Thus, there is much pressure on cutters and polishers to raise their prices, a trend that is likely to continue. Second, demand in most markets for diamonds and diamond jewelry remains strong. Aside from weakness in Japan and some uncertainty in the U.S., consumers in virtually every major diamond-consuming nation around the globe are vying for diamonds and diamond jewelry.
The IDEX Online Diamond Price Index
The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices in 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.