Certified Diamond Prices Decline 12.5% in 2012
Certified polished diamond prices fell in 2012 as global economic weakness slowed growth in China and poor government policy fueled further declines in India. Steady U.S. demand sustained the jewelry industry but consumer sentiment softened in December as pending tax hikes reduced holiday retail spending.
In December, the RapNet Diamond Index (RAPI™) for 1-carat polished diamonds was flat for the month, while other categories rose slightly, representing the first monthly increase since March 2012.
For the full year 2012, RAPI for 1-carat diamonds fell 12.5 percent, while 0.3-carat stones declined 7.4 percent and 0.5-carat diamonds decreased by 11.1 percent. RAPI for 3-carat stones fell 11.6 percent during the year. The Rapaport Melee Index (RMI) increased by 2.3 percent in 2012.
According to the just-released Rapaport Research Report, “Questionable Stability,” diamond prices stabilized in December as U.S. wholesale buyers closed for the holiday season and Indian manufacturers cautiously resumed operations after Diwali.
Rough trading remained quiet with improved demand for non-De Beers goods, which continued to offer better value than expensive De Beers rough. Manufacturers, who gained slightly better profit margins in December, expressed concern that De Beers and ALROSA might raise rough prices in the first quarter as the mining companies continue to limit supply.
Initial reports from the U.S. holiday season do not justify a rough price hike. While U.S. diamond demand was stable in the fourth quarter, preliminary data reveals mediocre overall U.S. retail sales during December. Prolonged fiscal negotiations in Washington weighed down on consumer sentiment as pending tax hikes on the wealthy impacted spending.
Elsewhere, Indian domestic jewelry sales were stable during the ongoing wedding season but overall caution lingers about the local economy, especially since government taxes, the weak and volatile rupee, and high rupee-based gold prices have taken their toll throughout 2012.
Chinese consumer confidence diminished in 2012 as the weak global economy affected the country’s trade and subsequently lowered domestic consumption and investor confidence. Forecasts point to improved growth in 2013 due to potential stimulus from the new government, raising expectations in the diamond and jewelry trade for better demand during the Chinese New Year season. However, the U.S. debt ceiling negotiations, now postponed to coincide with the Chinese New Year, could impact Far East consumer confidence and spending much as the European debt crisis did in 2012.
Forecasts for pending diamond price increases are premature and the trade should be careful not to inflate prices by buying diamonds with easy credit. Bank credit that enables firms to buy diamonds at unsustainably, artificially high prices must be stopped.
“Given expectations that the fiscal cliff will reduce demand for luxury products due to higher taxes, increased unemployment and reduced government spending, responsible companies should refuse to buy diamonds at prices that do not allow for healthy profits. Buyers should just say no to high prices. The real value of diamonds must be based on real money from real buyers,” said Martin Rapaport Chairman of the Rapaport Group.
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