A Diamond is Forever?

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A Snapshot of Diamond Asset Values in a Changing Marketplace

Date October 2015

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Commodities markets have come under intense pressure over the last year and diamonds are no exception. Lagging prices in the diamond market have been presenting challenges throughout the supply chain as manufacturers, dealers and vendors find themselves with little choice other than to continue selling at reduced prices. Gordon Brothers, as an appraiser, lender and restructuring agent serving the jewelry industry for well over a century has witnessed many business cycles and fluctuations in value. Prevention is worth twice the cure and experience has taught that there is no substitute for careful, disciplined monitoring, particularly of market prices of commodities when considering company’s inventories and the factors affecting their value. 

The challenges affecting the diamond industry over the last 12 months have shown no signs of abating as we approach the end of 2015. Anemic growth rates in many emerging market economies have eaten away at demand for luxury goods and solidified the United States’ current status as the world’s most robust market for diamonds. The second fastest growing market last year, China, is widely expected to see plummeting demand as recent stock market turmoil and anti-corruption campaigns have severely impacted the broader market for luxury goods. Other major diamond markets have fared even worse. Both Japan and the Gulf regions have experienced only 2 percent growth over the last year, even before accounting for local currency weakness against a strong US dollar. 

Yet despite the tempered demand for diamonds, global supply has remained steady with estimated global production actually increasing by 3 percent. Consequently, the prices of most diamond types on the market have fallen. The Rapaport Diamond Index for 1-carat diamonds is down 7 percent year-to-date and prices have slid 14 percent in the last 12 months. De Beers and ALROSA, which together make up the majority of the diamond supply worldwide, have significantly lowered prices in the face of muted demand. Below we detail some of the key drivers of changes in values affecting diamond collateral and provide background on some of the trends we’ve observed in appraising and trading in diamond inventory over the past year.

Sources: De Beers, Kimberly Process, RapNet, Rapaport, Paul Zimnisky