Diamond Prices Firming

Now that it has ended, it’s safe to say 2009 was a year that at best can be described as turbulent. The year started off at an all-time low. There was a complete loss of confidence in everything. This took a toll on the price of diamonds, as nearly every item was being traded at 50 percent to 60 percent below the Rapaport list. However, at the close of the year, prices had not only recovered much of their lost ground but were continuing to firm.

Shortages
The main reason for these recent price increases is the acute shortage of diamonds that match the market prices. The new production coming into the pipeline is from more expensive rough and polished dealers are not confident enough to purchase at higher prices even if the demand is there.

There is currently an evident move into diamonds that are more highly discounted, either for a lower grade in the cut, polish or symmetry, or if the stone is fluorescent. Even E and F in VVS grades are beginning to find buyers if the discounts are large enough. Stones with triple EX and with no fluorescence are always in demand, but buyers are somewhat put off by the ever-higher prices that are being asked for these stones. The only stones that surmount the price barriers are DIF and SI-and-lower clarities.
The price differentials in goods below K colors or in the SI clarity range are less of a problem, since most of these stones fall within certain price barriers and discounts are calculated accordingly.

The 3-carat-and-larger stones are extremely sought after and seem to be sold almost as soon as they hit the local market. That demand could be from diamond buyers who are looking for large stones with which to hedge against the fast-declining value of the dollar.

During a recent auction held by Christie’s in Hong Kong, large D flawless and fancy pink diamonds fetched record prices and almost all of them went to buyers from Mainland China. Many people there have made tremendous profits in both the stock and property markets, and others have access to cheap loans from banks, simply because of personal connections. They seem to think by investing in the best and biggest diamonds, they can stow away large sums of money.

One of the reasons auctions are so popular is that the value of the stones is verified in the bidding process, and the buyers — and sometimes those who receive the diamond as a “gift” — have proof that the market has established the true value of the diamond.

In other “big stone” market activity, there have been more stones of 5 carats and larger offered on the internet, and many of them are from Indian suppliers. However, large stones are not easy to negotiate over the internet, even if they are perfect, because ultimately the buyers need to see the stone. The costs of shipping these stones for inspection also are expensive because of the stones’ high value.

Moving Money and Goods
When dealing with buyers from Mainland China for diamonds of such high value, one of the problems is, of course, how to move money out of the country. There are very strict exchange controls and, aside from a handful of dealers with privileged arrangements, most diamond dealers have to bring the money into Hong Kong in dribs and drabs. That is fine for small purchases, but this approach can take a great deal of time when moving a significant amount of cash. Most large stones sold to Mainland buyers in Hong Kong, of course, are not normally shipped into China by official channels, because the buyers don’t want to pay the heavy duties and they want the sale to remain anonymous.  

Diamond demand in Hong Kong is still strong for certain types of merchandise, but both dealers and suppliers from overseas are finding it difficult to conclude sales because of the disparity of prices between Hong Kong and the cutting centers. The prices being asked at the cutting centers are higher than what can normally be sold in Hong Kong.

It takes time for the local market to adjust to these new prices. Hong Kong is primarily a big cash market and, invariably, visiting diamond suppliers are inclined to pare their costs significantly in order to turn their diamonds into cash. This results in some very big price differences among suppliers. Local dealers patiently fish for these differences.

Some retailers are still living in the past and are expecting to find the bargains that existed a few months ago, but they will have to sober up quickly, as the trend for prices is definitely upward, and the sources of cheap diamonds are quickly disappearing.

Hopefully, 2010 will be kinder than 2009, but the future is still insecure and any small hiccup can upset the recovery. The market recently had the Dubai hiccup, which was quickly swept under the carpet. The question is what is next?

The Marketplace

• Demand remains strong for stones over 3 carats. Stones 10 carats and larger are in big demand and seem to find ready buyers.
• Large princess cuts are also moving well and the same goes for pears and heart shapes. However, most of the demand for these cuts is in pairs, except for the large stones over 5 carats.
• In response to higher prices, buyers from China are lowering both the color and clarity grades in order to maintain former price levels.
• Demand for carat sizes remains steady.
• Demand is very slow for small diamonds for setting except for specific sizes, but demand for these stones usually declines during the end of the year.

Article from the Rapaport Magazine - January 2010. To subscribe click here.