IDEX Online Research: February Polished Diamond Prices Up Sharply
March 05, 08
Global polished diamond prices rose steeply in February 2008. On a year-over-year basis, polished diamond prices surged by 6.7 percent, according to the IDEX Online Global Polished Diamond Price Index. On a month-over-month basis – February 2008 compared to January 2008, polished prices increased by 1.6 percent. Both of these gains were the largest increases since the IDEX Online Global Polished Diamond Price Index was initiated in mid-2004.
As usual, prices of larger stones – two carats and above – rose sharply. However, in contrast to prior periods, prices of diamonds in the one-half carat to two carat range also posted price increases during the month of February. In short, it appears that prices of polished diamonds have solidified and are moving upward.
We believe four key factors are driving diamond prices higher: 1) solid demand from most markets, except perhaps the U.S.; 2) rising costs throughout the diamond pipeline; 3) a weaker U.S. dollar, the international currency for the diamond market; and 4) a global rise in the price of virtually all commodities.
Even though the U.S. is in a recessionary mode, we believe that demand from other regions of the world will help push diamond prices higher during 2008. As long as the demand for diamonds and diamond jewelry remains strong, especially in emerging markets, prices are likely to rise. Further, since rough diamond prices are rising faster than polished diamond prices, there is continued pressure to pass along those price increases.
Source: IDEX Online Research
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For the month of February 2008, average global polished diamond prices were up sharply by 1.6 percent – versus average diamond prices during January 2008. February’s month-to-month leap was the largest gain on record since IDEX Online has been tracking polished diamond prices (June 2004). On an annualized basis, this is a whopping 19 percent gain in polished diamond prices, a rate that seems unreasonable and certainly unsustainable. While January’s increase was moderate, December 2007 also reflected a dramatic jump in polished diamond prices. Even though two out of three months is not a trend, it is not to be dismissed as an aberration. The IDEX Online Polished Diamond Price Index, calculated on the average daily prices during February 2008, stood at 119.43 for the month, up slightly from 117.50 (revised) for the month of January. The IDEX Online Polished Diamond Price Index stood at 100.00 in July 2004.
The graph below summarizes month-to-month changes in global diamond prices for the past thirteen months. With the exception of February, May and the September-October 2007 periods, polished diamond prices showed solid gains during almost every month of 2007, a trend which continues into 2008.
The percentage change comparisons on the graph are based on the daily average prices during the month for 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 (eg. February 2008 versus January 2008).
Source: IDEX Online Research
February 2008 versus February 2007: +6.7 percent
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On a year-over-year basis, global polished diamond prices surged by 6.7 percent in February 2008 versus the same month a year ago – February 2007. This was the largest gain on record for the IDEX Online Global Polished Diamond Price Index, and it is beyond the high end of the overall long term price inflation rate in the polished diamond industry. This very strong price increase reflects solid polished diamond demand which characterizes most global consumer markets. Virtually all sizes of diamonds posted a price increase during February 2008.
We don’t think February’s diamond price inflation rate is sustainable, even though rough diamond prices are rising at a sharp pace. As we have said many times, 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. Retailers, however, aren’t taking any chances: most have announced that they are planning to adjust their prices during the first half of 2008, mostly to pass along rising precious metals prices. The IDEX Online Polished Diamond Price Index stood at 119.43 in February 2008 versus 111.90 (revised) in February a year ago.
On a year-over-year basis, polished diamond prices have shown larger and larger gains each month over the past year or so. The graph below summarizes year-over-year monthly polished diamond prices for the global market since the beginning of 2007.
Source: IDEX Online Research
Polished Diamond Prices Gyrated During February
Polished prices gyrated during February, on a year-over-year basis. Early in the month, they were like a roller coaster – up and down. There was a price spike late in the month, which did not hold. Prices finished the month down from the month’s high which occurred late in the third week and early in the fourth week of February. The following graph illustrates the average price of polished diamonds on a day-by-day basis in February 2008.
Source: IDEX Online Research
Diamond Demand Remains Strong for Large Sizes
Larger, better quality diamonds are in demand, and the prices of these spectacular gemstones reflects strong market demand. However, it is interesting to note that three carat stones showed the largest gains in February on a month-to-month comparison; four and five carat stones showed smaller gains. In a recessionary environment, we are not surprised: most consumers at all levels appear to be “shopping down.” Rather than purchase a five carat stone as a second diamond for the same wife, some shoppers are opting for slightly smaller, though still flashy, three and four carat stones.
February is the first month of several months where all key diamond sizes – one-half carat through five carat stones – have shown a price increase. The increase for smaller stones in the one carat and below sizes was modest, but that is a change in trend from earlier months when prices were modestly down consistently month-after-month.
Source: IDEX Online Research
On a year-to-year comparison, polished diamond prices showed a greater bias: prices for large stones in the three-to-five carat range rose much more sharply while prices of stones two-carat and smaller posted only a small, but notable, gain. Did four-carat polished diamonds really rise by 52 percent year-over-year? Ask any diamantaire who deals in large high quality stones: they will confirm that prices are spiking daily. February’s price increase for four carat stones was only modest ahead of January’s price spike of 48 percent, year-over-year.
Source: IDEX Online Research
Forecast: Polished Diamond Prices Higher, But At a More Moderate Pace
Global economic growth is expected to decelerate modestly during 2008, particularly among some of the world’s larger economies. In the U.S., economists are predicting a short, mild recession, perhaps in the first and second quarter. Consumers have been in a mental recession, and have cut back on their discretionary spending. Other high growth economies – such as China – are reining in growth in an effort to avoid inflation. As a result, jewelry and diamond demand during 2008 is expected to moderate, though gains will likely be solid.
In addition to economic woes in the U.S. market which we believe will take a toll on diamond and jewelry demand, diamond demand in the U.S. is expected to slow because of the DTC’s decision to reduce its marketing budget in this market in 2008. The U.S. market historically has about half of all the world’s diamonds and diamond jewelry by value.
The bottom line: it is likely that the sharply higher diamond price trends that characterized much of 2007 will not repeat themselves in 2008, based on the traditional relationship between economic growth and diamond demand. However, it is difficult to accept this forecast, based on the past three months of polished diamond price hikes.
Because rough diamond prices are rising at a pace faster than polished diamond prices, there is much pressure on cutters and polishers to raise their prices, a trend that is likely to continue. This will keep polished diamond prices from falling, and should provide support, along with baseline consumer demand, to send prices higher, but at a more moderate rate.
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.