Polished diamond prices were practically flat overall in September, according to the Mercury Diamond Global Tracker™ (MDGT™), an index of polished diamond transaction prices. The steady prices, which follow a months-long period of moderating price declines, are a positive sign of stability. Polished diamond prices have been continuously declining for the past three years.
Recent changes in demand for polished round shaped diamonds in key sizes highlight some interesting trends, anomalies and problems in the wholesale sector of the diamond market. A look over the past year reveals that ahead of the holidays, there is not only increased demand, as expected, but shifts in taste as well.
September was dominated by two events – the upcoming holiday season, and the Hong Kong Jewellery & Gem Fair. The upcoming season is starting to have a positive impact on the diamond industry, and the levels of demand are rising in the US. The Hong Kong trade fair went better than expected, yet traders were left with the following question: are we actually turning a profit, considering the cost of rough diamonds, and the achievable polished prices?
It’s the start of a new year, according to the Jewish calendar, and it is customary in the Jewish tradition during this time of the year to review the past, contemplate the future, and atone for the past year’s misdeeds. I have regularly expressed my thoughts about what the diamond industry is going through, most recently last week . An in-depth review of the past year is therefore a little redundant, but let’s go over the highlights before thinking about the future.
Polished diamond prices dropped 1.7% in August, 2017 compared to the prior year, according to the Mercury Diamond Global Tracker™ (MDGT™), an index of polished diamond transaction prices. The sharp decline follows a period of milder price declines during the past few months, and rising concerns about the financial wellbeing of the diamond industry’s midstream. Polished diamond prices have been continuously declining for the past 33 months on a year-over-year basis. The last time the index showed an upward year-over-year trend was in November 2014.
South Africa has a very long and important role in the history of diamonds. It was there, in the 1860s, that diamonds were discovered on the banks of the Orange River. The resulting diamond rush, and the establishment of De Beers’ foothold on diamond mining, transformed the industry, helping to develop diamonds as a viable commercial product for more than just the world’s elite. At one point in time, almost all of the world’s diamond mining activity took place in South Africa. While the nation is still an important producer of diamonds, its role has diminished. Today South Africa is the world’s fourth largest diamond producer by value, according to Kimberley Process statistics.
Take a look at the following table. A quick view shows that the majority of the cells are red. The red cells indicate which polished diamond categories have an increased presence in the wholesale market. Each red cell tells us where inventories increased, and each green cell tells us which polished diamond categories decreased. The increases are in red as a warning, and the declines are green because they are potential (but not necessary) opportunities.
On September 20, 1966, Botswana declared its independence from Great Britain. At the time, the country had a GDP per capita of less than $84, and was one of the poorest and least developed countries on the planet. Just seven months later, in April 1967, geologists discovered the Orapa diamond mine within a cluster of kimberlites in the North-Central part of the country. The discovery set off a diamond rush that eventually led to the discovery of many more viable diamond mines, and elevated the country into one of the most important diamond producing nations in the world. Since that time, Botswana transformed itself into a thriving African nation, with diamonds central to its development.
The summer vacations are behind us, and the diamond industry is already in full motion. The range of activity is large, and as we start thinking (and working) towards the important November-December holiday season, it is worthwhile to take stock of where we are, and where we are going.
When compared to other major industries like telecommunications, oil and gas, or consumer electronics, the diamond industry is relatively small. However, as I have noted in the past, the diamond industry employs an estimated ten million people around the world, both directly and indirectly. It also inspires dazzling artistic creations, and offers savvy investors a wealth preservation asset in times of financial turmoil. But some of the most important benefits that the diamond industry creates are often the least well known to the general public and the media.