After moving up solidly for nearly four months, global polished diamond prices stabilized in April, according to the IDEX Online Polished Diamond Price Index. Polished diamond prices rose just 0.8 percent in April compared to March.

 

IDEX Online Research believes that this pause in upward momentum will be short-lived, since there are a number of factors putting pressure on polished diamond prices, including the following:

 

·        Higher Rough Diamond Prices – Rough diamond prices have risen this year. When raw material prices rise, costs rise for every subsequent participant in the diamond pipeline

 

·        Higher Retail Prices – It is an ill-kept secret that many jewelry merchants are raising prices at the retail level. This makes it perfectly acceptable for their suppliers to raise prices without giving some lame excuse.

 

·        Higher Production Costs – Underlying manufacturing costs have continued to rise. The burden of these higher costs must be passed along the diamond pipeline, and polished prices will necessarily rise.

 

·        Re-Stocking Underway – As retailers re-stock their showcases, demand will be inflated artificially. Suppliers will use this as an opportunity to test market tolerance for higher prices.

 

·        Economic Recovery Underway – Along with an economic recovery, inflation rears its head. Economic growth and inflation go hand-in-hand: it’s happening right now. Prices will rise.

 

Polished Diamond Price Metrics for April

Listed below are the key metrics that affect the global polished diamond price market. Each of these metrics is discussed in further detail later in this article.

 

·        The IDEX Online Global Polished Diamond Price Index averaged 114.65 for the month of April, about in line with the ending Price Index for March of 114.64.

 

·        Polished diamond prices rose 0.8 percent in April versus March, based on average prices for the month.

 

·        Polished diamond prices rose 5.8 percent between April 2010 and April 2009.

 

·        Polished diamond prices remained relatively stable during the month, though there was some very modest rise in prices during the final three days of the month that has continued into May. At publication time, the IDEX Online Index currently stands at over 115.

 

·        By size on a month-to-month basis, most – but not all – polished diamond prices have show upward movement. In particular, three-carat stone prices are sharply higher, while four-carat stone prices are lower.

 

·        By size on a year-to-year basis, most polished diamond prices have moved up. Reflecting similar trends of the month-to-month comparisons, three-carat diamond prices have jumped notably, while four-carat diamond prices lag the levels of a year ago when the industry was in the depths of the recession.

 

Polished Diamond Prices Stable in April

After rising sharply since late in 2009, global polished diamond price inflation paused in April, as the graph below illustrates. IDEX Online Research believes that this is simply a brief slowing in upward price momentum that will characterize the industry for the rest of this year and into 2011.

 

April is traditionally the slowest month for the diamond industry, and this was specifically so this year. The backdrop to this was two holidays, Easter and Passover, which followed quite a disappointing Basel show for diamonds. The mood in the global production centers was subdued throughout the month. Some are concerned that the April slowdown is not only the traditional second quarter hold up, fearing that it be more than that.

 

The following graph summarizes the IDEX Online Price Index for the past two years. While the red bar for April 2010 is higher than the March 2010 bar, this is based on average polished diamond prices during the month. In fact, polished diamond prices were flat during April.

 

Source: IDEX Online

 

Month-to-Month Average Prices Rise a Modest 0.8% April

Based on average prices during the month, polished diamond prices in April rose by 0.8 percent over the prior month. However, we believe that the monthly average price comparison is misleading in the current environment: prices in March were rising, while prices in April held steady.

 

The graph below summarizes month-to-month price comparisons based on average monthly prices for the global polished diamond market.

 

Source: IDEX Online

 

Year-to-Year Polished Diamond Prices Rise a Solid 5.8% in April

Prices for polished diamonds rose by 5.8 percent in April, compared to April 2009. This annual inflation rate of near 6 percent is modestly above the long term inflation rate, and is to be expected during a recovery period.

 

The graph below summarizes the year-to-year polished diamond price comparisons.

 

Source: IDEX Online

 

The table below summarizes monthly average polished diamond prices, based on the IDEX Online Polished Diamond Price Index.

 

Source: IDEX Online

 

Polished Price Trends Vary Significantly by Size of Gemstone

When compared to the prior month (March 2010), diamonds of most sizes showed solid price gains in April 2010, with the exception of four-carat stones. It is worth noting that prices for larger diamonds – primarily four carats and larger – have been slower to recover than prices for smaller carat diamonds.

 

We believe that the previous price disparity between smaller stones and larger gems was due to the market during the recession: consumers had been “buying down.” Now that the recession is over, and jewelry demand has perked up, there appears to be demand for most sizes of diamonds.

 

The following graph illustrates price trends on a month-to-month basis for polished diamonds by key size.

 

Source: IDEX Online

  

The table below summarizes month-to-month price movement by key diamond sizes over the past three months.

  

Source: IDEX Online

 

Year-to-Year Polished Diamond Prices Mostly Solidly Higher

While four-carat diamond prices continue to lag, prices for virtually all other major diamond sizes have moved up when compared to last year’s dismal recessionary level prices.

 

The graph below summarizes price movement by size for April 2010 as compared to April 2009.

 

Source: IDEX Online

 

The next table summarizes price movement by size on a year-over-year basis. In February and March, four-carat diamond prices fell by a low-to-mid single digit level, but in April, prices for those diamonds fell by a high single-digit level versus last year.  

 

Source: IDEX Online

 

 

Three-Year View Reflects Rising, Falling & Recovering Diamond Demand

The graph below illustrates polished diamond price trends for the past three years by size, based on the IDEX Online Polished Diamond Price Index. Clearly, a diamond price bubble occurred in mid-2008. The bubble burst late in the third quarter of 2008 as consumer demand waned; diamond prices swooned and financing in the diamond pipeline dried up. After bottoming last year, IDEX Online Research believes the recovery in diamond prices has begun.

 

Source: IDEX Online

 

Diamond Demand Is Ultimate Driver of Inflation

While we listed several key factors that are expected to fuel polished diamond prices higher over the near term, the key driver of higher prices will be demand for diamonds at the retail level. In short, if consumers step up their spending on diamonds, prices will move up. That’s the way capitalism works.

 

IDEX Online Research has been in touch with a large number of jewelry retailers, and they all reflect roughly the same sentiment: business is OK, but it isn’t robust yet.

 

We believe that “robust” sales probably won’t show up until the fourth quarter of 2010. By then, consumers will be really tired of being stingy with their money. Further, by then, unemployment levels will have declined notably, so the probability of new job losses will have declined to acceptable levels.

 

Jewelers are “walking a fine line” right now. On one hand, they don’t want to be caught with too much inventory. On the other hand, they want to have new merchandise to entice shoppers into their stores.

Cycles occur. We are in a recovery period. Jewelers should begin stocking up. Sales will pick up. And inflation will perk up.