The general consensus was that 2007 was “okay” for the Israeli diamond industry, as tighter profit margins continue to squeeze diamantaires despite record polished export figures.
Israel’s Ministry of Industry, Trade and Labor reported that polished exports grew 7 percent to an all-time high of $7.05 billion last year. But the figures largely reflected higher prices in the market, as volume fell 2.2 percent and average export prices rose 9 percent to $1,742.9 per carat.
“Last year was better than 2006, and the second half was stronger than the first,” said Shmuel Schnitzer, honorary president of the Israel Diamond Exchange (IDE) and partner at M. Schnitzer & Co., which manufactures round and fancy cuts. “Overall, the year was okay, but profitability is still the biggest issue for the industry.”
Israel Diamond Institute (IDI) Managing Director Eli Avidar credited the strong exports to Israel’s strategy of focusing on the Far East, as sales to Hong Kong rose 33 percent, compared to the United States, where sales fell 6 percent for the year.
Starting With MacauThe Israeli industry started 2008 with the same Far East focus in mind, with more than 50 Israeli companies exhibiting at the Macau Jewellery and Watch Fair, 37 of whom were part of the IDI pavilion. Some left disappointed, however, as attendance grew progressively weaker through the show’s duration.
Nissim Duek, a partner at Protea Diamonds, which specializes in ideal and excellent cut stones, said the show was very quiet and attracted mainly Indian buyers.
Other exhibitors had expected the weak attendance, given this was a first-time event, and based on its timing in January, when people don’t traditionally buy a lot of diamonds, explained Eitan Mor, a director at Mor Diamonds, which specializes in hearts and arrows. Mor said his company sold almost exclusively to existing customers it had invited to the show, but admitted that Macau seemed weak for exhibitors who depended on show traffic and who didn’t bring in their own customers.
Cautious About the U.S.
Diamantaires expressed deepening concern for recession talk in the U.S. which, despite its recent sales decline, still accounted for 40 percent of Israel’s polished exports in 2007.
“We are very concerned because the U.S. is not opening up,” said Udi Kuperman, a partner at Kuperman Brothers. “This is still our main market and our customers there reported slow Christmas sales.”
For 2007 as a whole, though, Kuperman, which manufactures all shapes from 30-pointers to 5 carats, reported a 20 percent rise in sales, with strong performances in the Far East and Europe. But the company also hinted at tighter margins as profits remained flat for the year. Kuperman echoed the general sentiment that 2008 would be strong in larger stones for the high-end market, which has not been affected by the slowdown in spending, with VS, VVS clarities and up expected to sell well.
Both Schnitzer and Mor agreed that demand for 4 to 5 carats and up would continue to rise and that it would be increasingly difficult to find them.
DTC Disappoints
Competition to get rough will intensify in 2008, due to more large companies operating outside the Diamond Trading Company (DTC) framework, according to Schnitzer. “There are some very strong Israeli companies that lost their sights,” he said. “This is going to make life a lot more difficult for smaller nonsightholders that are going to have to compete with these companies to get rough.”
DTC cut five Israeli companies and added two to its sightholder list for the 2008 to 2011 contract period announced in late December. IDI’s Avidar said he was confident the companies that lost their sightholder status would effectively adapt to their new situation. “We are very disappointed about the results, but we don’t take it in an overly dramatic way,” he said. “We believe those companies that lost their sights are big enough, and have been in the industry long enough, that they can create new sources of rough supply.”
Lab To ExpandIsrael’s diamond grading laboratory, the World Gemological Institute (WGI), announced it would soon expand its services to the international market. The WGI will initially offer two types of reports: a small certificate called Diamond Precis and a full Diamond Grading Report. WGI said it was responding to increased demand by consumers of polished diamonds for certified goods, and to the growth of the Israeli industry as a whole.
The Marketplace
• Beginning-of-year sales were slow in Europe and the U.S.
• Demand increased in the Far East for clean goods, collection goods and low colors.
• D-F colors are in high demand despite a recent price hike.
• J-M are seen as bargains due to price increases in better colors.
• 1 to 1.5 carats are moving well.
• Demand is strong for larger stones above 3 carats.
Article from the Rapaport Magazine - February 2008. To subscribe click here.