An Opportune Time

It is an unusual diamond market these days. Polished diamond exports from India were down about 1.5% in April compared to March, but up 14% year-over-year. The rise was not a result of improving prices, as the average value of goods declined 2.4%. The reason for the rise in exports was the high volume of shipments out of the leading manufacturing center, increasing 17% to 2.77 million carats. At the same time, rough trade through India declined by all measures – imports and exports, value and volume. Even by average value per carat.

In Belgium, polished diamond trading also exhibited a decline in value and a rise in volume in April. Exports fell 6.6% to $728.2 million, while rising 3.4% in volume. Imports of polished diamonds declined 2.6% to $861.7 million, rising a whopping 29.5% by volume. However unlike India, rough diamond trading in Belgium only increased in April.

Israel stopped publishing monthly diamond trading figures in 2008, so data on trading by the Israeli diamond center in April are not available, however in the first quarter of the year – January-March 2018, Israel’s polished diamond exports declined 33% to $1.16 billion. Polished diamond imports rose 7% to $747.2 million. As for rough diamonds, they too declined, with imports falling 7% to $729 million and exports softening 1% to $761 million.

At the same time, diamond trading activity in Hong Kong improved. Imports of polished diamonds increased 10% to $5.17 billion in the first quarter of 2018 and exports increased 4% to $3.53 billion. The same goes for the US, where gross polished diamond imports rose 16.4% to $5.9 billion in the first quarter of 2018. By volume, imports rose 10.6% to 2.6 million carats.

In short, while the trading centers are slowing down overall, the consumer centers are seeing increased activity. This is a result of rising exports from the trading centers to the consumer markets, while the inner trade between the diamond centers of Mumbai, Antwerp, and Ramat Gan decreased.

This may seem a little anecdotal, but it has real world implications. For example, if inner-trade activity is declining, that may indicate that the industry is streamlining. Having an efficient industry is important. An inefficient industry is characterized, among other things, by excess market participants, traders that do not add value to the goods they are trading – they don’t improve the goods, don’t brand them, and don’t move them into places with shortages. In a market with improving efficiencies, players that do not find a niche are doomed. By definition, better efficiencies mean that players that do not add value are pushed out.

A more efficient market is also a market where goods such as polished diamonds change fewer hands, so price is not pushed up as much, and traders are more profitable. That sounds idyllic – price is lower, yet traders’ profits are higher.

As stated here in the past, the diamond market is changing. It is evolving, because it became inefficient, because financing is tough, and because consumers are not as wild about diamonds as they were previously. The market has changed and will continue to do so.

Another aspect of this change, as reflect in the trading figures presented above, is the sliding price of polished diamonds. In 2010 and 2011, prices went wild, especially in 2011. Consumers in the US and China were unwilling to pay the much higher prices and have slowly turned away from diamonds. That forced retailers to reduce prices, which reverberated up the diamond pipeline, through wholesaling, manufacturing, and eventually to the mining companies. All were forced to lower prices - and then came the 2017 holiday season.

Current Market

As we know, the holiday season of November-December 2017 was good for diamond jewelry sales. There were two main reasons behind the good sales: designs that consumers found more appealing than before, and of course, much better prices.

If you look at the below graph of Mercury Diamond’s index of polished diamond prices, you will see, prices have declined almost steadily since mid-2011, sliding to near flat in the last few months.

The first quarter of 2018 saw demands rising and inventories decreasing in the midstream of the diamond pipeline. This provided a certain degree of economic relief to those in the midstream, and they turned to buy rough diamonds. The main producers, De Beers and ALROSA, provided plenty of goods at first, but resisted the urge to hike diamond prices. That acted responsibly.

In March, we saw a certain cool down in the market. The first polished output from the rough diamonds purchased in January started to fill inventories. Many goods that were in demand were still hard to find, which had a chilling effect on prices. So after the small increases in January and February, polished diamond prices cooled in March. However, that did not last long, and prices started to rise again in April. This made the better market already a trend. That translated to confidence, a feeling that the market is changing for the better and that the change is sustainable.

Now, in mid-May, we see a strong reaction to these trends. First, polished diamond prices are continuing to rise. I’m not sure how long it will last, but the upcoming Las Vegas trade shows will signal a rise or a pull back. Either we are heading into ongoing good demand from American retailers and consumers, and with it a good fourth quarter in 2018, or retailers will decide to act cautiously, buy selectively, and focus on very specific items.

Until then, the market is not resting. Traders keep selling polished diamonds, manufacturing fresh goods, and buying rough diamonds. As it is clear to all that this is not a fad, prices of rough diamonds are rising. Manufacturers attending rough diamond tenders in Antwerp are bidding high, and miners offering their goods at these tenders, mainly mid- to small-size, are very happy with the most recent results.

Considering the current willingness to pay more for rough diamonds, the large diamond miners are not holding back anymore. A t this past week’s sight in Botswana, De Beers increased prices, according to Sightholders. ALROSA is expected to follow suit. Now it is in the hands of manufacturers to control the situation. Will they let the flood gates open and keep buying rough at continually increasing prices, or will they buy what they need, at costs that they can afford, and stop buying early enough to not allow the price hikes to escalate beyond profitability? We hope it is the latter. After an extended period of very limited profitability and declining sales, we all need a period of stabilization, steady sales, and reasonable profitability.

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.