Global polished diamond prices stabilized in November 2006. While they are still modestly below last year’s levels, the decline in price has decelerated from prior months’ comparisons to the same period last year. Further, month-over-month comparisons for most of 2006 show that prices held steady in November, and may be firming.

 

With the prospects of a global economic slowdown on the horizon, diamond prices would normally have a tendency to soften, since consumer demand usually weakens when economic growth starts to slow. Since diamond prices appear to have firmed, this would signal that there are fundamental changes occurring in the diamond industry; specifically, supply and demand may be in better balance. We believe that much of the industry balance between supply and demand is coming from the supply side of the industry. In part, rough suppliers have begun to rationalize their prices and sight sizes. The inventory of polished diamonds may have leveled, due both to the lack of available financing as well as some production cutbacks among some suppliers.

 

The real reasons for the stabilization between supply and demand of polished diamonds won’t be fully revealed near term; it often takes months, if not years, to fully understand industry dynamics. But the bottom line for polished diamond producers is good news: prices appear to have stabilized.

 

The graph below illustrates monthly diamond price trends for the past year. Comparisons are based on monthly average prices, year-over-year.

 

Polished Diamond Price Trends Percent Change Year-over-Year by Month Source:  IDEX Online

Month-to-Month Prices Flat

The average price for all polished diamonds held firm in November 2006 versus October. This is a good sign, since normally there is some price strength going into the all-important holiday selling season. Almost all of the key world markets have some major event that drives jewelry – and diamond – demand in the fourth calendar quarter. Thus, polished diamond price trends suggest that retail merchants have begun to stock up on goods, and polished diamond suppliers feel confident enough to hold prices steady.

 

The graph below summarizes the IDEX Online Polished Diamond Price Index since the beginning of 2005 through November 2006. While diamond prices have fallen from their peak in the fall of 2005, they appear to have stabilized in recent months.

 

IDEX Online Polished Price Index 2005 - 2006 100 = June 2004 Source:  IDEX Online

Consumers Want Big Diamonds

Most retail jewelers in America report that there is strong demand for larger diamonds, especially in the 2.0-to-4.0 carat range. Many report that demand for diamonds in the 1.0-to-1.5 carat range has softened. However, as always, there is demand for “flash for no cash” – small diamonds with big sparkle.

 

In Melee, the smaller diamonds below 0.03 carats, used in “flash for no cash” jewelry, dealers generally report that prices for appear to be firm. For larger diamonds, polished prices by size reflect current trends in retail demand, as the graph below illustrates.

 

Polished Diamond Price Trends by Size Average Price - November 2006 vs. November 2005 % Change Year-over-Year These Six Sizes = 30% of the Market Source:  IDEX Online

 

Early Holiday Indicators in U.S. Market Point to Strong Jewelry Demand

Many jewelry retailers in the U.S. market reported that jewelry demand has been very strong since early November, when the all-important two-month holiday selling season begins. Some examples of comments IDEX Online Research has heard:

 

• Tiffany reports that its same-store sales in U.S. stores are up low double-digit levels, above its plan of high single-digit gains. Same-store sales in its international markets are exceeding the company’s plan of mid single-digit gains. The strongest sales are in jewelry priced above $20,000 retail. Statement diamonds – very large diamonds – are in demand, as are diamond collections.

• An AGS guild jeweler with just under ten stores reported that same-store sales were up over 20 percent in the Thanksgiving period. He is frantically trying to get more merchandise into his stores.

• A major mass market chain jeweler reported that same-store sales were up in the mid-teen range in late November. Thus, it appears that mass market jewelers are also participating in surging consumer demand for jewelry in the U.S. market during the holiday selling season.

If these demand trends continue, it will be a good season for the jewelry industry, and far better than IDEX Online’s original predictions of a 4-5 percent gain. Inflation is boosting the average ticket, and sales of much larger diamonds are having a dramatic impact on industry revenues.

 

The IDEX Online Diamond Price Index

The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices of 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 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.

 

Additional information is available from IDEX Research – diamondprices at idexonline dot com.