Israel Market Report

November 1, 2009
Avi Krawitz

RAPAPORT… Israeli diamond manufacturers and wholesalers are keeping their expectations low for the Christmas season, after the preholiday selling spree didn’t materialize as it did in other years. Market activity, however, is slowly improving amid challenging pricing and selling conditions.

“As far as Christmas goes, the season is basically over for manufacturing, and now is the time you have to do business,” said Haim Ashkenazi, co-managing director of S.A. Diamonds, manufacturers of rounds and fancy cut diamonds, who specialize in fancy yellows. “It has not been great but you could still work. You have to know how to buy and sell at the right price.”

Almost all who spoke to RDR indicated that the season is highly dependent on prices, particularly following the strong price resistance from buyers at the September Hong Kong show. While Chaim Livne, managing director of R. Rothem Diamonds, which manufactures rounds for export, was encouraged by the better mood in the market, compared with a year ago, he, too, noted that price differentials were holding the trade back. “Economies are improving and that is helping, but to see a real improvement, we need some relief on prices,” Livne said. “We need to see an increase in polished prices, and some softening on the rough side.”

Chinese Hope
For similar reasons, and following reports of a disappointing Hong Kong show, Effi Lax, managing director of Shemesh Diamonds and its recently launched online business, www.verifiedbuy.com, said he is not optimistic for Christmas. He appeared more encouraged by trends in the Far East and noted that the Chinese economy has performed better than the U.S. This, Lax added, will filter through to the diamond market, particularly before the Chinese New Year season in February. To capitalize on this trend, Lax is in the process of launching the Chinese version of his website.

While there have been some recent improvements in global economies, Lax stressed that there is still too much insecurity to expect a full recovery in the short term. “Even though people have money, there is still uncertainty in the market and they would rather save than spend their money on diamonds,” he said, noting the high U.S. unemployment as a key factor in the uncertainty.

Ashkenazi argued that people with extra money are looking at diamonds as a safe investment today, especially considering the low interest rates being offered by the banks and the volatile price of gold. He noted that the market was “improving every day.”

Statistical Climb
Indications of a busier Ramat Gan bourse were also evident in the third-quarter trade data provided by the Israel Ministry of Industry, Trade and Labor. Polished exports, while still 41 percent below 2008 levels, exceeded $1 billion in the three months that ended September 30, nearly double the value of the second-quarter total. Similarly, the country’s rough imports have steadily increased from quarter to quarter, but remain 38 percent below the third-quarter 2008, at $735.7 million. By volume, rough imports were the same as a year ago, indicating that the slump in rough import value reflected only price differences.

New Challenges
Despite these trends, most were extremely cautious about their businesses, especially because of the challenges still apparent in the market. “In today’s economy, you need to be extra efficient with costs to be profitable, and the key is to sell at the right price,” Ashkenazi said. Edi Faltz, owner of Edi Faltz Diamonds, a dealer in all size and shape stones, agreed, stressing that strong price resistance from buyers was cutting profit margins. Faltz added that there is a notable shortage of goods in the market, even as buyers are seeking to fill specific orders. “There is a lower level of demand than before the recession, but you can’t find the stones to fill the orders,” he said, estimating that only 15 to 20 percent of orders for certain stones can be filled.

Faltz noted large shortages in 0.40- through1.80-carat, G+, SI+ stones, as well as for larger 6- to 8-carat diamonds. S.A.’s Ashkenazi noted that demand for fancy yellows was improving slowly, but still lags behind whites. Others noted good demand for 0.30- to 2-carat, VS to SI stones in all colors, while there is some demand for VVS stones in F colors and lower. The market for D through E colors appears slow.

Livne echoed Faltz in reporting the scarcity of goods in the market, but summed up that price was the significant factor influencing the market at the moment. “We are seeing basic demand for diamonds but the problem is profitability at the moment. Rough is very expensive and polished has not moved, so it’s difficult to make a decent profit,” Livne said. “On the one hand, there are not enough goods on the market and, on the other hand, you are being squeezed by the customer on price.”

The Marketplace