After polished diamond prices declined sharply in September, they took an additional step downwards, though it was not particularly significant. The Mercury Diamond Global Tracker™ (MDGT™) averaged 111.55 in October 2018, down 0.17% from September. While demand for loose diamonds remains slow, we believe traders hardened their stance on price as much as possible in anticipation of rising demand. October is historically a period of rising demand for polished diamonds by retailers preparing for the November-December holiday season. In the past few years, demand by jewelry manufacturers peaked in September, followed by a minor slide in October. Every October since 2014, overall prices have declined by a few fractions of a percent. In the last five years this month-over-month decline averaged 0.3%, putting this past month’s price declines on the lighter side. This year was unusual due to a deep price decline in September, which may explain the relatively smaller decline in October. Another issue in the trade-impacting prices is a large inventory, mainly of small size polished diamonds. This oversupply, coupled with the lower demand, has implications for the mid-stream of the diamond pipeline as well as diamond mining companies.
According to a National Retail Federation (NRF) forecast, 22% of Americans intend to buy jewelry during the winter holidays. That is a nice figure, but it represents a decline from the 23% that were forecasted to buy jewelry during the winter holiday period of 2017. Not a large decline, even within the statistical error, yet worth noting. During the 2017 holiday season, sales by specialty jewelry retailers increased 3.7%, while total holiday sales rose 5.5%. This means that fine jewelry lost market share. Since 1993, the average year-over-year increase in the sales of specialty jewelry retailers was just 2.9%. That includes the drops during recessions, but also the sharp increases in the 90s, just 2.9%. This year, holiday season purchases are forecasted to rise 4.1%, which seems out of reach for most specialty jewelry retailers.
The World Federation of Diamond Bourses (WFDB) was founded in 1947 to unite diamond exchanges under a single umbrella and provide a common set of trading practices and rules for diamond bourses around the world. These practices cover trading in rough and polished diamonds as well as colored gems. Headquartered in Antwerp, Belgium, the WFDB has 31 member exchanges and diamond centers, covering all the main diamond trading centers, sometimes several exchanges in a country, of various sizes and levels of activities. At the heart of the WFDB’s rules is a code of practice and arbitration. It is through these common rules that commercial disputes between diamond traders that are members of different diamond bourses are managed and resolved.
A slowdown in trade in most diamond centers is having an impact on prices of many items. The market is suffering from an oversupply of small goods that is having an effect on financing, rough diamond purchases and, of course, prices as the market is heading to Diwali.
Demand is falling and dragging prices down with it, leading to a decline in trade. That is the central theme of the recent past. Miners, countries and traders are all reporting a decline in activity. A worrying trend throughout the diamond pipeline.
Polished diamond prices declined sharply in September, eroding all the gains made during the year. The Mercury Diamond Global Tracker™ averaged 111.74 in September 2018, down 1.85% over August. This is the deepest monthly price decline since May 2015, when prices plunged more than 4%. Polished diamond trade was very limited during the month due to a series of Jewish and Hindu holidays.
Demand for polished diamonds in September softened overall. A combination of holidays and a trade show in Hong Kong, a city that was hit by massive typhoons, slowed down activity in the market. With a cyclical decline in retail activity among jewelry retailers, the good demand seen in August has declined too.
After the July declines, polished diamond prices were flat in August. The Mercury Diamond Global Tracker™ (MDGT™) averaged 113.85 in August 2018, up 0.03% over July. This is not unusual behavior for prices in August, a period of limited activity between polished diamond wholesalers. Polished trade is generally very limited, as traders are on their summer vacations. Historically, prices fluctuate very mildly in August, and at times are unchanged.
The Indian market is in the headlines again. This time, because of news in the Indian press that a consortium of lenders to a large diamond firm decided to file an insolvency case against it. A few days later, more banking and lending-related news came out that cast a heavy shadow over the Indian diamond hub.
August is generally a period of slow activity in the diamond industry. Traders, manufacturers and wholesalers in Belgium, Israel and the US were away on their summer holidays as were many industry members that are based in India. The exception to this is US retailers, as those operating in popular tourist destinations saw a rise in in-store consumer traffic, which then spurred limited trading activity, mostly among American and Indian suppliers.