June 2013 review of fancy color diamonds

Natural fancy color diamonds have been capturing consumer attention for the past few years, providing increased sales and profits for savvy buyers. Yet there are still many opportunities in this specialized area that remain untapped because many retailers, designers and even appraisers don’t fully understand the dynamic nature of this market and how it continues to change.

In addition to rare colors commanding stellar prices, there are also many natural fancy color diamonds that fit into any product mix – at every price point – but the key to the profit picture depends upon knowing how broad the color range actually is, how they compare in price, and how to see and judge the impact of subtle differences in appearance, desirability and value. Fancy-color diamonds offer more opportunity than ever before along with challenges never previously encountered. Even from a gemological perspective, yet data is still evolving.

We are witnessing the fancy color diamond market expanding and ripe for investment, yet there are so many variables involved. At the present time there is a rough diamond price increase, strong markets in Southeast Asia, records being shattered for Sales of Fancy Color Diamonds at auctions reinforcing a strong investment trend in the rarest of the diamond gems.

 

Scarcity of Rough Diamonds and Inflated Prices

 

Because rough diamonds have been so scarce, there has been increased demand, therefore a leap in prices. “Availability of rough diamonds between 0.10-0.50 carats was scarce in the last couple of months. Consequently, prices of both rough and polished diamonds in this segment rose five to six percent lately. Overall, prices of rough and polished diamonds have raised 10-12 per cent in the last two months,” said Umesh Parekh, managing director of Kolkata-based Shree Ganesh Jewelry House. After a staggering 57 per cent rise in the import of rough diamonds in December 2012, imports fell sharply in the three subsequent months.

However, in April, imports rose 18.48 percent, as Indian jewelers rushed to bridge the deficit created by the robust demand. Despite a six per cent rise in overall rough diamond imports, jewelers were ready to pay premium to secure supply of independent buyers. This of course has had an enormous impact on the market of fancy color diamonds and this trend is expected to continue, especially if investors rush to buy rough diamonds at inflated prices.

 

Strong Demand for Fancy Color Diamonds

 

Rapaport Weekly reminds us that “There is strong demand for clean, fancy color goods.” The FCD market has been fairly stable in terms of demand, yet prices are increasing. Consider the recent auctions at Sotheby’s that set two new world records last month at its Magnificent and Noble Jewels Sale in Geneva, Diamond World reports: the highest price paid for a fancy yellow diamond – $2.9 million – and the highest per-carat price paid for a fancy yellow diamond – approximately $39,000. The stone in question, a 74.53-carat cushion-shaped SI1 clarity polished diamond, used to belong to the Persian Shah Ahmed Qajar.

 

Continual Surge of the Southeast Markets

 

Even with the current financial troubles the world shares, the diamond market appears to be on the rise. Especially is Asia, more specifically China, Singapore, and India, demand for high quality investment worthy diamonds has dramatically increased. US consumers as well are recovering their confidence. The industry has not seen any major discoveries of diamond fields for about two decades, which keeps supply low while demand is high. Major reports this month indicate that the Chinese market for diamonds is second only to the U.S. and we expect continual ramping in Southeast Asia for Fancy Color Diamonds.

 

Current Status of the Argyle Mine

 

At least in the near future, things are only looking positive for the colored diamond investor. Among the most valuable and highly recommended investment stones today are the Argyle Pink Diamonds. The Argyle diamond mine, located in Australia, currently belongs to the Rio Tinto group (Stock Profile – ASX: RIO), which is the third largest diamond miner in the world. Rio Tinto has already publicly announced the upcoming end (year 2020) to the Argyle mine which is famous for the production of the finest pink diamonds in the market. The company has been trying to sell the Argyle mine for almost a year now in the hope that someone else would take over the remaining seven years of the mine life, but has been unsuccessful. As reported recently by Sky News, the company is now trying to raise hundreds of millions of pounds through a separate listing of the unit in order to float the business. The Argyle diamond mine produces over 90% of the pink diamonds in today’s market and there is no other mine with capabilities to do the same. Even if another mine was found today, it would take close to ten years before they were up and running to full capacity.

As noted in our previous newsletter: Argyle invested heavily (2.2 billion) to reopen its underground mine in Western Australia. By reaching deep underground in Argyle’s ore body, the investment will keep the mine active and producing until 2020. At full production, the Argyle underground mine will generate around 9 million tons of ore per annum, and on average approximately 20 million carats per year over the life of the block cave.

 

Other Market Trends

 

The international diamond market seems to constantly be on the move. Petra Diamonds Ltd. (Stock Profile – LSE: PDL), which owns eight mines in South Africa and Tanzania and an exploration program in Botswana, has a clear focus on mass production. They are aiming to be the largest producers in Africa, and already hold fame to the ownership of five of the twenty-four most productive mines in the world. In fact, they recently announced the discovery of a 25.5 carat blue diamond from one of their most successful mines, the Cullinan mine in South Africa. At the moment, diamonds in general, and fancy colored diamonds more specifically, are shining bright in the eyes of the investor.

 

Apparent Trends from the JCK Las Vegas Show

 

There was a strong demand for clean fancy color goods globally. The U.S. is ok, yet not booming, –but functions as a source of stability for the global market compensating for weaknesses in Europe and the Far East. U.S. investors are still recovering in confidence to invest in fancy color diamonds –this upswing is expected this year, as more signs of supply dwindling and demand increasing continue, not only locally, but on a global level.

 

Trends in Fancy Color Diamonds

 

The natural fancy color diamond market has experienced an upsurge in popularity among consumers yearning for rare and one-of-a-kind diamond purchases. Steady growth in demand, diminished supply and increased prices has all contributed to transforming the fancy color market from a speculative and risky business to a lucrative and attractive niche.

  • Rough FCD Diamonds will become more rare and expensive
  • Polished FCD Diamonds will become more rare and expensive
  • The U.S. Market should stabilize in FCD demand and sales
  • Continued upsurge in the Southeast Asian markets

Such an economics of scarcity make an investment in the fancy color diamond market a once in a lifetime, probably “now or never” choice, given the diminishing supply.