Have prices of Fancies truly declined in the past week? Not at all. The prevalent list is out of whack with the industry, and that, ladies and gentlemen, is the sad, brutal truth. My heart goes out to diamond traders the world over. It’s not only that the global economy is whipping them, De Beers and Alrosa are pouring expensive rough over their heads and retailers are demanding lower prices than the diamantaires can offer; now comes the price list and in one fell swoop tells them that they should reduce prices by up to 18 percent. This is not reflective of the true changes in the market.
Imagine diamantaires, especially manufacturers, holding on to expensive stock, trying to protect a meager 5 percent margin, only to be told that their stock is worth on average 4.7 percent less. In the immortal words of the Wendy’s hamburger commercial – “where’s the beef?” Indeed, hardly anything is left.
It’s not only retailers that manufacturers need to face. How will they explain the value decline to the banks that provide financing against inventory? How will they explain this to buyers who purchased goods last Wednesday and are now demanding some of their money back?
Only last week, we showed the diverging directions of polished and rough prices. How rough price increases regularly outpace polished price changes. Between the second quarter of 2011 and the first quarter 2011, rough prices increased on average by 3 percent. At the same time polished prices declined by 4 percent. The gap between rough and polished became razor thin, and now there is a forced, drastic price decrease.
Don’t get me wrong, polished prices are high, but their slow and steady decline was a gentle softening. But when you update a list only on rare occasions, and then change prices all at once, the scene can be brutal.
Fancy cut diamonds were a depressed item for a long time. The prevalent list did not update prices for a while and manufacturers did not want to manufacture them. Manufacturers preferred to polish rough fit for Fancy cuts into rounds because of the price list, losing a lot of the yield for no good reason. It was expensive too, further backing the high round prices.
When retailers understood the opportunity and started to buy low cost princess and cushion cuts, they had an alternative to rounds and could offer their clients a lower cost option.
In the past few weeks, we started to see prices of Fancy cuts edging up gently and then WHAM! The bull steps into the china shop. A single twist, a careless move (more than a thousand price decreases across the board in a single day), and fragile constructs crashed.
In Contrast, the IDEX Price Report for Fancies listed just 33 price changes this week, only nine of them are price decreases, the rest are price increases.
The price hikes on the eve of the JCK Las Vegas show in 2008, a time when demand was very limited, are etched in traders’ memories. Three months later, one of the worse financial crashes in a century took place. Retailers sensed it coming. The price list didn’t. It was out of tune.
In phone calls, emails, on Facebook and in face-to-face conversations, we are hearing traders voicing their concerns, anger and frustration.
Sir Winston Churchill once said, “Although prepared for martyrdom, I preferred that it be postponed.” So do diamond traders. The method is to step away from the slippery path and the lubricant that is poured all over it, and choose a safer path, one that dignifies their efforts.
