IDEX Online Rough Diamond Market Report: The Seller is King

(IDEX Online News) - Another cycle of surging rough diamond prices is hitting traders, many of them paying in addition firm premiums as the sector becomes a suppliers market. DTC, Alrosa and most other suppliers hiked prices this cycle and at BHP Billiton's tenders buyers took care of that by bidding high on most items. Following are the figures and a cautious outlook.

The most common explanation in the market for the willingness to pay more is the firming in polished diamond prices. Quick to take advantage of the strong demand, producers increased their prices nearly across the board.

The largest rough diamond supplier, the DTC, increased prices by nearly 11% at its Sight last week. Alrosa pushed up prices by a low double digit, and at BHP prices went up by some 6%, though in many categories prices fell by 1%-12.5%.

The market sizzled during the Sight week, but cooled a little in the past couple of days, resulting in a 2%-3% decrease in premiums. The most affected items were the low cost boxes, such as the MB Low -7 +5, its price hiked by 30% to $98 p/c. The MB -5 +3, with a 36.5% boost to its price, nearly reached $94. The price of the Rejection boxes was jacked by 9.5%-26%, depending on the box. All in all, the price increases appear to range from mid-single digit to well over 30%.

As for premiums, the Fine 2.5-4 ct box, with a price increase of more than 9.5% to ~$2,770, sold for an extra 10% in the secondary market. For the Commercial 5-14.8cts box, at $3,200 p/c, traders were willing to pay a 15% premium, a 12% premium for the smaller Commercial 2.5-4cts and 17% for the Cubes 4-8grs even though its price was increased by 11%.

"We take a long term, responsible and sustainable approach to our pricing, informed by multiple data sources"," says DTC spokeswoman Louise Prior about the price hikes. One of these sources is Diamdel, where demand was strong in March, mostly in the Near Gem and Smalls categories, Diamdel reported.

At BHP Billiton, the winning bid for the -9 Run of Mine goods, $125, added 18.6% to the price paid last month. The price of high ticket items did not increase as much, for example 2.5-6ct Z White LOW, with a clearing price of $2,867 p/c - a 10.3% increase, or 2.5-6ct Z White HIGH, which added 6% to close at $3.738.

The expectation in the market is that prices will continue to soar, which drives manufacturers to pay now, and spare the need to pay more later. Asked if the industry entered a bubble, the opinions very, but tend to be optimistic. Some say it's a small bubble that won't pop anytime soon. Others claim that we are not in a bubble, because "the business is working, all the way down to the consumer," as one trader told us.

Another veteran trader feels that there is some confusion in the market, pointing out as an example to wide variations in tender bids. In one such recent tender, the winning bids are five to ten times higher than the lowest bids. "Don't think that the low bids were made by traders that don't understand the business," he emphasized.

Outlook

It's not clear where all of this is leading. Obviously, there is a ceiling that has not been reached yet. Further, there is something very normal about the market – consumers are buying diamond jewelry and every sector in the pipeline is increasing its activity – and prices – to meet that rising demand. Therefore, even if matters cool to some degree, expect to see a continued active rough sector that buys and sells with a firm belief in its ability to maintain high prices – and margins. The test will be the summertime - after the Vegas shows.

Demand for Key DTC Boxes, Sight 3