“It has been a perplexing time because the change in August was sharp and dramatic,” said Shmuel Schnitzer, honorary president of the Israel Diamond Exchange (IDE) and chairman and chief executive officer (CEO) of S. Schnitzer Diamonds. “Due to the global economic situation, we quickly went from an atmosphere where the sky was the limit in the first half of the year to uncertainty.”
Schnitzer stressed, however, that the Israeli industry was in a strong position, compared with other centers, largely due to its relatively low bank debt. While local banks have maintained conservative lending policies since the 2008 downturn, continuing through the period of growth, Schnitzer noted that this helped the industry when the market turned so that the liquidity pressures that exist in other centers are not prevalent in Israel today.
Bank Interest
Yair Sahar, president of IDE and chief executive of Sahar Atid, stressed in a notice to IDE members that the exchange’s leadership has been working to maintain a strong relationship with the banks to help move the industry forward. In light of that effort, he expressed concern that a number of Israeli banks recently notified clients in the trade that they have raised the interest rates for lending to the diamond industry.
“This move is problematic, to say the least, especially since we have in the past few weeks engaged with the producers to buy rough, and in light of the recent correction in polished prices,” Sahar said. “In such an environment, it is up to everyone who has an influencing position in the market to mobilize and lead the industry to calm and stability. Such unilateral decisions as those made by the banks are difficult to understand.”
Other Concerns
However, most in the bourse were looking beyond Israel’s domestic banking practices to the effect that tight liquidity in India has had on the global market. Combined with volatility in the equity markets and slower growth in the U.S. and Europe, that lack of liquidity undermined overall market confidence for much of September.
Doron Itzhakov, manager at Hadad Diamond Company, noted it was too soon to tell whether the downturn represented a temporary correction, or if the market was still vulnerable to a more sustained downtrend. “We will see in a month or two whether stability settled in or not,” he said. “If dealers needed to buy diamonds to prepare for Christmas, they had to do it around the Hong Kong show because it’s very difficult to predict what will happen in terms of prices and supply and demand.”
Schnitzer agreed, but stressed that in theory, the fourth quarter should be okay as Chinese demand remains strong and demand in the U.S. continues to recover, despite the persistent economic concerns.
Yariv Har, a partner of ADR Kropveld Diamonds, manufacturer of the Passion Cut, noted that while U.S. polished dealers were cautious, U.S. retailers show stable demand for goods. Buyers, he noted, have continued to move toward cheaper goods in response to price increases. “Retailers have to rethink their portfolios. They cannot replace the stock they had four months ago on the same budget because they are dealing with different price points today,” Har said. He observed that retailers are moving toward smaller sizes and lower qualities and that there has been a rising interest in fancy shapes.
Har added that buyers are currently looking for what they need and avoid making any projections about market movements. Still, he remained confident that the Christmas season in the U.S. would be okay, barring any major global event, and predicted that consumers will focus on value purchases. “Eventually, this whole cloud of uncertainty will clear, but for now, it’s all about price points and getting value for money,” Har said.
Mixed Feelings
Most diamantaires who spoke with Rapaport Magazine said polished inventories were relatively low heading into the fourth quarter, and that they expect manufacturing to rise in October to fill demand.
Schnitzer explained that dealers have to work day to day to ensure that their inventories of rough or polished do not become overstated. However, he added that people do need goods and that there is still reasonable demand from all over the world. As a result, the atmosphere in the bourse has been quite mixed, albeit better than in other centers.
Itzhakov agreed and acknowledged that “Overall, people need to be cautious and both buyers and sellers need to tread cautiously in this market,” he said. “They need to know their limitations.”
The Marketplace
- Trading is relatively slow as dealers wait for sustained
price stability.
- There is a shift toward lower price points.
- Buyers are compromising on size and quality to maximize
their budgets.
- Demand is good for .30-carat to .70-carat and 1-carat to
1.5-carat I+, VS-SI, triple Ex goods.
- There is growing demand but narrow supply for 1-carat
stones in lower colors and clarities.
- Demand is good for cushions and princess fancy shapes.
