Reasons for Optimism in the Diamond Market

By far the most consequential story over the past week went a little under the radar. De Beers signaled it would reduce prices at the sight that began today, as reported by Rapaport’s Joshua Freedman.

The move, corroborated by my own sources, is a sign that De Beers believes the market is improving. That may sound counterintuitive given the price cuts, but De Beers typically adjusts prices to stimulate buying when it sees polished inventories have declined and demand beginning to recover.

There are signs that this is happening. Polished prices have improved, led by a turnaround in smaller goods. Rapaport reported its RAPI index for 0.30-carat polished diamonds rose 4.2% in June, adding to a 3.3% increase during the first five months of the year. Prices for 0.50-carat goods also strengthened, while the 1-carat category remains weak.

Perhaps more significantly, Joshua noted that the price cuts were intended to make De Beers more competitive by bringing its prices closer to prevailing market levels. Historically, De Beers has maintained a premium for its sight goods in exchange for the consistency of supply it provides. If so, the move could signal a shift in how De Beers views its role in the market as it enters a new era of lower production, fewer sightholders and new ownership.

For now, though, we'll take the price cuts as a useful gauge of the market's direction. Trading conditions tend to ebb and flow, but the current downturn has been unusually prolonged, with the industry struggling for more than three years. Demand for natural diamonds has stagnated as retail jewelry sales have bifurcated between distinct consumer segments, forcing suppliers to reduce production.

I explore why the jewelry market is splitting in two and what it means for the diamond industry in my latest video.

This blog first appeared in the July 6 Pressing Matters Executive Memo. Read the full memo here, Pressing Matters.

Image: Sightholder inspective De Beers rough supply. (De Beers)