Inventories Up, Demand Down and Lab-Grown Prices Continue to Drop

Diamond Inventories Up Demand Down and Lab-Grown diamond Prices Continue to Drop - featured
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The diamond industry is out of balance. The rough diamonds produced at mines only partially fit current consumer demand. This may explain why price movement is restrained. Meanwhile, among lab-grown goods, matters are a little more lively.

Although prices of smaller lab-grown goods have been mostly stable, the prices of larger goods sank in the first quarter of 2019. A combination of oversupply and technological developments contributed to the price decline. These two causes are also the biggest issues related to lab-grown.

Inventories Growing

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. The bulk of the increase was among quarter- and half-carats.

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.

Polished Diamond Midstream
Inventories – Indexed

Polished Diamond Inventories - indexed March 2016-March 2019Edahn Golan Diamond Research & Data Ltd

Demands are Specific and Limited

The inventory buildup is not surprising in light of weakening demand. Although demand for natural diamonds expanded to a wider range of goods, the overall quantity in demand has declined both quarter-over-quarter and year-over-year.

An unenthusiastic trade show in Hong Kong and the very limited activity at Basel are two of the glaring examples of the level of demand in the market.

Another aspect of the change in demand for polished diamonds is the cautious approach taken by market participants: Retailers are holding as minimal a stock as possible, there is a rise in wholesalers’ willingness to offer goods on memo, manufacturers in India have reduced their polishing activity by an estimated 30% and De Beers has decided to reduce production.

At the same time, market consolidating is ongoing. The number of specialty retailers continues to decrease, large chains are decreasing store count and firing staff, diamond trading companies are closing while not being fully replaced by new traders, and diamond mines are slowly shutting down as they deplete. Marketing is spotty at best and ineffective.

Inventory and Demand Out of Sync

The imbalance between demand and availability is quite glaring. Inventories are out of tune with demand. The only areas where inventories declined against demand were in the 0.18–0.22-carat, 2-carat and 4-carat size ranges. Among quarters, demand and inventory were balanced. In every other size range, supply grew faster than demand.

This means that manufacturers are churning out goods that retailers are less interested in. At the same time, traders are pointing out to long-term shortages in certain goods.

Effectively, manufacturers are tying up capital in goods that will need to be discounted (and at times heavily discounted) to move them, while struggling to secure rough diamonds for desired items.

This is partially a result of narrow consumer demand versus the wide run-of-mine production and limited flexibility in buying rough diamonds. But it is also an issue of figuring out where demand is going and lining up goods accordingly.

Prices of Lab-Grown

One of the outcomes of the fast paced growth in downstream demand in the past year was the quick rise in LGD production. Typical of a new market with a lot of buzz, there are many new players: both producers and traders. While their emergence has led to a quick jump in supply, there were fewer actual purchases of smaller goods than expected in the first quarter.

Lab-Grown Price Index

Lab-grown diamond price index Q3 2018 - Q1 2019 Edahn Golan Diamond Research & Data Ltd

Prices of Smaller Lab-Grown Stable in Q1

Wholesale transaction prices of smaller goods, 0.23–0.89 carats, were stable in the first quarter of 2019, according to our LGD Price List. The price stability is a balance between weaker than expected demand and firm pricing by Chinese HPHT producers. The one outstanding exception was among the lower end, J-M color/SI1-I clarity goods. Their prices fell 6–11% in the first quarter compared to Q4 2018.

The drive to grow larger HPHT goods with the aim of providing lower-priced goods is ongoing. In the first quarter of the year, that led to a growing supply of 0.90–0.99-carat HPHT goods at the expense of CVD-produced ones. Subsequently, it brought a 7.4% decline in the overall average wholesale prices of the 0.90–0.99-carat size range.

This has become a repeated pattern in the past year. HPHT technology continues to improve, and producers are growing larger rough HPHT. Then those lab-grown size ranges show a price reduction. These technology and price trends are expected to continue in the near- to midterm and to impact larger sizes.

Oversupply Leads to Sinking Prices

The combination of rising supplies and weaker than expected demand has left traders with large inventories, especially of 1-carat and above. 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%.

Lab-Grown Wholesale Transaction
Prices % Change: Q1 2019 vs Q4 2018

Wholesale Lab-grown Price Change - Q1 2019 vs Q4 2018 - Edahn Golan Diamond Research & Data

An emerging trend worth paying attention to is a growing demand for top items. One outcome is that more traders are offering triple excellent LGD. Another outcome is that the very top color/clarity goods had higher prices in Q1 compared to Q4 2018. On the other hand, prices of the lowest color/quality goods were slashed in half.

Finally, compared to wholesale transaction prices of natural diamonds, prices of LGD are on average 65–84% lower, depending on size, color and clarity.

About the Author:
Edahn Golan
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Edahn Golan has 20 years of experience as a diamond industry analyst. He has a unique ability to provide a global view with context to the exclusive granular data he shares. The New York Times, Wall Street Journal, Business Insider, and other leading publications quote him regularly.

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Comments 8
  1. Hi Edhan,
    Very interesting article. I would be very interested by your LGD price list. Can you send on my email the details. Thank you

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  2. Hello Edahn – I have a question on your last sentence, which reads: “…compared to wholesale transaction prices of natural diamonds, prices of LGD are on average 65–84% lower, depending on size, color and clarity.” Are you saying that in an apples-to-apples comparison (same size, color, clarity, cut quality, quantity, stage of the wholesale market and geography of the wholesales market) that mined diamonds are selling for 3x to 6x the price of lab-grown diamonds?

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      Hi Paul,

      Yes, when comparing apple to apple, that is same size, color, clarity, and same stage in the pipeline, round lab grown are trading at such a heavy discount to natural diamonds.

      The main reason for the wide gap is rarity and high cost of production for naturals, compared to the much lower cost of production and the ability to “press” as many diamonds as the market demands.

  3. Hi Edahn

    When you say “Although demand for natural diamonds expanded to a wider range of goods” do you mean just spread across sizes or being used for other than jewelry.

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  4. Hi Edahn. Can we really be surprised by the current market conditions? Aside of developing economic, political and social changes, we have a highly disruptive force, LGDs, that are not only taking some of the cream, but also introducing doubt into the value of naturals. In large, high quality stones, naturals continue to hold value – though who knows for how long. But in I-1, browns? The industry is largely denying reality in a desire to protect itself. But the decision is in the hands of the public. In our totally fragmented structure, there is not the power or the ability – maybe even the desire – to change the calculation.

  5. Hello Edahn,

    Would be appreciated if you can mail LDG price list to my email I’d

    Thank you

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