Smaller Profits, but Business Moving

Israeli diamond cutters entered the New Year in a relatively positive mood considering Christmas fell below their expectations and rough and polished prices were squeezing their profits.

“The mood is much better and people are much more optimistic,” said Rony Eitany, president of Regent Diamonds, which manufactures 1 to 10 carats-plus in all shapes, including fancy colors, focusing on the Asian and Indian markets. “Everyone is forecasting that things will improve and that the worst is behind us.”

Dotan Siman-Tov, managing director of Lili Diamonds, a manufacturer of fancy shape diamonds, agreed, noting that you have to expect an improvement, “otherwise, we may as well all pack up.” He explained that as the market improved through the second half of the year, the atmosphere in the bourse changed. “People are talking business again,” he stressed, while adding that the positive trend should continue in 2010.

Price Uncertainty
Still, there remains some uncertainty regarding prices due to the way the rough and polished markets have played out in the past year. Rough prices increased significantly in the second half of the year, as demand improved, while the polished market remained relatively stable. This dichotomy has many perplexed.

“We thought no one would touch rough at these prices but they are buying, and maybe they are creating another bubble,” said Marcel Apfelbaum, president of Apple Diamonds, a polished dealer specializing in fancy yellows. “It’s a big mystery how they can make a profit on such expensive goods. Maybe they know something we don’t.”  

Siman-Tov explained that the manufacturers are caught in the middle of absorbing the pressure from the miners to buy rough at high prices, and pressure from jewelers to sell polished low. As a result, Apfelbaum explained, “if you want to manufacture rough at a profit today, polished prices need to come back to precrisis levels.” 

If the Price is Right
Eitany said he expects polished prices to go up in the near term, noting that dealers are buying less on the open market, while polished demand is steady. “If demand continues at the same pace in the short term, polished prices will have to go up and I expect this will happen,” he said.

All business owners who spoke with RDR reported shortages in the market but qualified that this was the result of the lack of manufacturing in the past year, rather than excessive demand for goods.

Sell And Move On
Siman-Tov noted that the crisis of the past year has changed the way people do business and that they are selling very differently now. On the one hand, he explained, clients are picky, but then there are those who may be having problems with the banks and are therefore willing to sell cheap. 

Pointing out that change has extended to the way people are managing their businesses, Siman-Tov said, “The past year was one in which businesses reorganized themselves. The crisis left its scars and people are more conservative about where they spend their money.”

Manufacturers noticed this trend in their retail customers, who were not stocking up with goods. Even in the run-up to Christmas, jewelers chose to sell out the stock they had accumulated through the year, rather than buy new merchandise. This contributed to the quieter-than-hoped-for Christmas buying season in Ramat Gan in October and November.

Siman-Tov took this as a stark reminder that despite the improvements in the market, it is still a recessionary environment where “it’s better to sell at discount than not at all.”

Apfelbaum agreed and stressed that this was the secret to the Israeli diamantaires’ success in handling the crisis. “People are very dynamic here. They get a boost very easily and are quick to respond,” he said. “While other markets won’t close a deal unless they get the right price, Israelis take the smaller profit and move on.”

Partnering India
The Israel Diamond Institute Group of Companies (IDI) continued its strategy to strengthen its activities in foreign markets by signing a cooperation agreement with India’s Gem and Jewellery Export Promotion Council (GJEPC).

The memorandum of understanding calls for the two groups to explore areas of joint interest, establish joint lobbying activities for the reduction of import taxes on loose diamonds in pertinent markets, promote the sale of diamond jewelry in the respective local markets and create a joint task force to examine international bankruptcies and their impact on their constituents.

The agreement formed part of IDI’s “Together Works” program implemented in 2009. “We believe the world economy requires a different approach at this time and IDI supports partnerships because we firmly believe that ‘Together’ works,” said Eli Avidar, IDI’s managing director.

The Marketplace

• Traders are optimistic the market will improve in 2010.
• Brilliant rounds in 0.9 to 1.5 carats are selling strongly.
• Demand is good for collection D-F, VS+ stones.
• Demand has improved for larger stones of 3 carats+.
• In fancies, demand is good for princess cuts and has improved for cushions and radiants.
• Demand for fancy colors has improved, particularly for special blues and pinks.

Article from the Rapaport Magazine - January 2010. To subscribe click here.