India Gaining Industry Control

RAPAPORT…

Israeli diamond cutters and dealers have grown increasingly aware of the influence their Indian counterparts are having on the market, as both rough and polished prices appear to be rising perpetually.

“The Indians are leading the market and have a monopoly of sorts where they control 70 percent to 90 percent of the industry’s business,” said Israel Atzmon, managing director of Ajami Diamonds Ltd., a manufacturer of round and fancy shape diamonds, specializing in 1- to 5-carat sizes. “They pay top prices for rough and when we sell polished to the Indians, they pay top prices, which others cannot match.”

While Atzmon recognized that he stood to benefit from the “Indian bubble” by selling polished to Indian dealers, he cautioned that he was not sure how long it would last. Similarly, Moty Goren, managing director of Gal Diamonds, said he was concerned about an expanding bubble in the market “that will eventually burst,” stressing that the market simply needs to cool down.

Rough Shortage

To calm the market, Goren reasoned that there needs to be more rough coming through the pipeline. “I don’t think the price increases are the result of strong demand, but rather a result of shortages in both rough and polished goods,” Goren said. “If the mining companies released more goods, there would be a better balance between supply and demand and polished prices would be maintained.”

Yuval Harary, president of Yuval Harary Diamonds, primarily a manufacturer of fancy shape diamonds and diamond jewelry under the Fourever brand, disputed that there is a shortage of goods in the market, explaining that if you’re prepared to pay the price for rough, you’ll find the stones.

Harary added that he feels mining companies have the goods to supply but are holding back rough in order to get the best possible price and maximize their profits. As a result, he noted that it’s very difficult to profit from manufacturing with the current rough prices. “Rough is extremely expensive and the polished doesn’t follow,” Harary said.

However, Goren noted that polished prices also “have gone crazy” in the first two weeks of February, and attributed the rise to Indian dealers, who pay high for rough and are raising the price on polished. “It seems they have come to understand that they are the main power in the industry and can dictate prices,” he added.

U.S. Market Soft

Atzmon listed the Indian influence as one of two factors impacting the current market. With an economic recovery starting to unfold, he noted that the U.S. is taking a backseat, which has changed the way business is being done. “At the moment, we are buying from the U.S. and cannot sell to them, and I don’t see any hope for new U.S. clients in the near future. We buy from them to help fill demand coming from elsewhere,” he said. He also stressed that, due to the economic crisis, he has shifted away from credit toward dealing in cash, which does not suit the U.S. market. Harary agreed that the U.S. is very soft at the moment and that one has to be careful about doing business there. “We don’t give credit anymore, and they must pay before delivery,” Harary said. “I don’t mind giving credit to Hong Kong customers, they are more reliable, but the delay in payments from the U.S. is not worth the headache.”

Most Israeli diamantaires who spoke with RDR acknowledged that both the Far East and U.S. markets were lagging behind the manufacturing centers in adjusting to the new price levels, which has become the main sticking point in closing deals.

As a result, many see the March Hong Kong show as a testing ground for the strength of that market, and particularly its ability to absorb higher prices. Israeli cutters, however, are keeping their expectations low for the show, as the recovery in the global economy remains shaky. Again, Atzmon expects the success of the show will depend on Indian buyers. “If they’re not there, there won’t be much of a show,” he said.

Local Trade

Trade within the bourse remained active through January and February, particularly as companies prepared for the Hong Kong show, scheduled for March 5 to 9. The rise was evident in Israel’s January trade statistics, which showed an 84 percent increase in polished exports, from January 2009, to $563.2 million in January 2010. While admittedly much improved from 2009, exports were still 24 percent below their January 2008 numbers.

The Marketplace

• The bourse has been active as companies prepare for the Hong Kong show.
• There is some speculation going on in the polished market because manufacturers are finding it difficult to profit on expensive rough.  
• The price difference is growing between round stones in Triple EX and nonTriple EX.
• Special sizes — 0.60 to 0.69 carat and 0.75 to 0.89 carat — in H+, SI1 stones are hot.
• Demand is strong for 1.25 carats, 1.75 carats and 3 carats.
• Demand is good for collection goods in 1 carat, D, IF-VS.