Edahn Golan: Diamond Supply & Demand Imbalanced, Synthetic Prices Falling

Market Analysis
30/04/2019 15:12

Just about wherever one looks in the diamond industry - natural or synthetic - demand is not keeping up with supply, or is out of balance, writes Edahn Golan on his Diamond Research & Data site.

The natural industry is rife with polished supply, but that supply is not in tune with consumer demand. As a result, "Inventories of round-shaped polished natural diamonds held by wholesalers and manufacturers increased by more than 6% in the first quarter of 2019, as compared to the fourth quarter of 2018," Golan writes. "The overall rise in inventory levels adds to an already ongoing buildup in polished diamond stocks. On a year-over-year basis, inventory levels rose nearly 40%, the highest increase in three years, according to our research. This does not spell good news for the diamond industry on any level - production, manufacturing or financing." He attributes the rise in inventory to "weakening demand", but also to the "cautious approach taken by market participants", with retailers not wanting to hold stock and wholesalers accommodating by their "willingness to offer goods on memo." This situation has led to an estimated 30% decline in diamond manufacturing in India. 

Meanwhile, all the media enthusiasm for synthetic diamonds has led to over-enthusiastic production on the part of growers, as the quick rise in LGD production far outpaced consumer desire for those products, leading to a quick and significant fall in prices. The combination of rising supplies and weaker than expected demand has left traders with large inventories, especially of 1-carat and above," Golan writes. "For those goods, still mainly CVD-produced, oversupply has had a strong influence on prices. Overall, prices of 1-carat LGD dropped 20.3% on average quarter-over-quarter. The wholesale prices of 1.5-carat goods fell 15.8% during the period, and 2-carats declined by 9%." The situation is exacerbated by HPHT technology improving, enabling the cheaper process to produce larger rough stones - typically the domain of CVD diamonds. "The drive to grow larger HPHT goods with the aim of providing lower-priced goods is ongoing," leading to a "7.4% decline in the overall average wholesale prices of the 0.90–0.99-carat size range." Wholesale transaction prices of smaller goods, 0.23–0.89 carats, were stable in the first quarter of 2019, he adds. 

Edahn Golan and his partners have recently developed a price list for laboratory-grown diamonds. Click "Read the full article" above right for further analysis.