RAPAPORT... As the global economic crisis deepens, Israeli diamantaires have assumed an adapt-or-die attitude as they seek ways to minimize the impact of a slow market.
“Unless we take a proactive approach and emphasize the value in diamonds, it will be very difficult to move against the general economic trend and pessimistic mood,” said Leibish Polnauer, president of Leibish Polnauer & Co. Ltd., which deals in natural fancy color diamonds, melees in calibrated sizes and large stones, 3 carats and above. “It’s an extremely challenging environment, but the world is not coming to an end and we need to dissociate from this negative pressure trend.”
Polnauer pointed to the recent Sotheby’s Magnificent Jewels auction in Hong Kong, which, despite the financial meltdown, achieved strong prices, to illustrate his point that “diamonds remain one of the few, truly reliable sources of investment.” While most agree that selling diamonds as an investment makes for a good advertising campaign, some questioned the readiness of the market to buy into the idea.
Small Goods Show Movement“I don’t think people have the confidence or courage to invest in diamonds now, but maybe a strong advertising campaign by the likes of De Beers would help change that,” said Moty Goren, general manager of Gal Diamonds, manufacturers of rounds up to 5 carats and large-size fancy shapes.
Goren said there was still demand for smaller, lower-quality goods up to 3 carats in SI clarity and lower coming from both the U.S. and Hong Kong, but cleaner goods VVS and up were not selling, or were doing so at larger discounts.
Similarly, Yossi Yogev, general manager of Iris Diamonds, which manufactures stones between 0.01 points and 3 carats in D to L colors and focuses on the market in Thailand, noted very little movement, especially in bigger diamonds.
For many in Ramat Gan, the biggest concern throughout the crisis has been the U.S. because it is still the largest importer of Israel’s polished diamonds, accounting for about 45 percent of total Israeli polished exports. But many have managed to safely hedge the U.S. risk by moving to the growing markets in the East.
Stay Away U.S.A.
Yshai Rosental, president of Yshai Rosental Diamond Manufacturer, a specialist in excellent cuts from 30 pointers to 5 carats, said he saw the writing on the wall in the U.S. about two years ago and shifted his focus accordingly. Whereas previously the U.S. accounted for 80 percent of Rosental’s business, today it is about 20 percent. “The crisis in the U.S. is not new and we don’t have high expectations there. Our focus is on China and the Far East, which are working just fine,” Rosental said.
Polnauer disagreed, however, and maintained that the U.S. market for diamonds would stabilize once financial markets calm down, likely in 2009. “I don’t think you can escape to the East,” Polnauer said. “The U.S. market will recover faster than others.”
Financial Market SlumpThe full extent of October’s global financial crisis may not have been felt as strongly in Ramat Gan as in other markets since trading activity in the bourse was quiet anyway for the Jewish holiday season. The same could be said for the country’s general economy and financial markets. The Tel Aviv Stock Exchange (TASE), for example, was closed for the Yom Kippur holiday on October 9, a day when the Dow Jones Industrial Average (DJIA) lost 7.3 percent to move below the 9,000 mark, with other world markets following suit. The TASE was not immune to the downturn, however, and the TA-100 index of the 100 largest companies on the exchange was down 41 percent on October 23 from the beginning of 2008.
In an effort to cushion the impact on the Israeli economy of the “sharp increase in uncertainty in financial markets,” Bank of Israel Governor Stanley Fisher cut interest rates by half a percentage point to 3.75 percent in a surprise announcement in mid-October. At the same time, Fisher noted that the global financial crisis has increased the chances of a slowdown in Israel’s rate of economic growth. The country’s gross domestic product (GDP) is expected to grow 4.3 percent this year and by just 2.8 percent in 2009, according to the International Monetary Fund (IMF), compared to the 5 percent-plus rate seen in the past three years.
Stable but QuietWhile the country views the diamond industry as a somewhat stable source of export revenue, local diamantaires still expressed uncertainty over the current conditions. “We don’t know what the future will bring and psychologically, the environment is having a big effect on business,” said Alex Daniel, of Alex Daniel Diamonds, which focuses its trade online, selling 30 pointers to 3 carats in both certified and noncertified goods. “The market is very quiet and people don’t want to invest in diamonds at this time.”
The Marketplace• Trading was quiet through the Jewish holiday season, which helped alleviate the impact from the global economic slowdown. Still, a lot of market uncertainty remains.
• Many traders reacted by canceling plans to travel to India to buy goods.
• Some movement exists in smaller goods.
• Clean goods are in less demand because of their higher price.
Article from the Rapaport Magazine - November 2008. To subscribe click here.