RAPAPORT... Israeli diamond cutters ended 2010 satisfied that market conditions had improved during the year but cognizant of the challenges they face in 2011. “There is business being done, but there’s no boom,” said Dotan Siman-Tov, managing director of Lili Diamonds, a manufacturer of fancy shape diamonds. “Growth in China, India and Hong Kong has been strong and Europe has also recovered a bit as consumers there tend to look for higher-end, better-quality diamonds.”
Siman-Tov said that while the U.S. has improved over 2009, it has not yet returned to precrisis levels. He attributed the slower growth in the U.S. to sluggish economic conditions and the maturity of the market. He also noted that problems remain in doing business in the U.S., particularly the lenient payment terms that clients demand.
Marcel Apfelbaum, president of Apple Diamonds, a polished dealer specializing in fancy yellows, agreed that the U.S. has shown slight improvement and that the biggest hurdle is collecting money there. He added that the recycling market in the U.S. for buying back diamonds and gold jewelry, which emerged during the recession, has quieted somewhat in recent months.
Growing East
Despite the fact that the U.S. remains the single largest diamond market, both Apfelbaum and Siman-Tov agreed that growth is being driven by China and India, and Israeli cutters are conscious of the need to develop these markets. In fact, Apfelbaum is impressed by the strength of Indian manufacturers and dealers, who are not only competing with Israeli manufacturers but also have emerged as among Israel’s best customers. He noted that this strength is a double-edged sword for Israeli manufacturers because at the same time as they are benefiting from doing business with the Indians, they are also losing some share of the market to them.
While the Indians are dominating the market for small and melee stones, Israelis still have a niche in the big stones, Apfelbaum explained. “We have 20 to 30 years more experience than the Indians in the rough,” he said. “An Israeli cutter will still give you better yield from a stone.”
Globally, the diamond market remains highly competitive, with innovation and creativity more important than ever before. Siman-Tov explained that Lili Diamonds has maintained a strong focus on marketing in the East and, as a result, is doing more shows there. “It’s a natural thing that you invest where you are doing business,” he said. “You can see the difference between the shows in the U.S. and in Hong Kong. People are more serious about doing business in Hong Kong — they don’t come just to get a feel for the market.”
Lack of Supply
Conditions are particularly difficult for smaller manufacturers at the moment, according to Siman-Tov, because the more expensive rough is cutting into their polishing margins. He noted that, as a result, smaller businesses have reduced their manufacturing activity.
Apfelbaum said slower trading at the end of 2010 was due more to a lack of supply than a lack of demand for goods. While polished buyers were firm on prices throughout the year, Israeli dealers and manufacturers observed that their resistance to higher prices eased somewhat in December. Despite that softening in attitude, Apfelbaum said that the cost of rough continued to rise out of proportion to the polished and a boost in polished demand would be required to achieve some equilibrium.
Moshe Bronner, managing director of Aliya Diamonds, a polished dealership specializing in sizes above 1 carat, rounds and fancy shapes and natural fancy colors, reported that the market was very steady in the second half of 2010 and prices were relatively stable. “Even at retail, people knew where they stood, which fed confidence to the market,” he said.
“Demand has risen in China and India and the Chinese are starting to look at a broader portfolio, like the SI1 goods,” Apfelbaum said. “There is demand for specific items but there are shortages in some categories and it is difficult to find the goods.” As a result, he added, trading in Israel was relatively flat in December.
Forecast and Hope
Siman-Tov stressed that buyers do not buy for stock anymore and they don’t buy without having an order in place. He added that internet technology is leading buyers to be more precise in their requests than before. “You have less flexibility because customers ask for exact parameter like Triple EX stones,” he said. Apfelbaum noted that easy internet access to diamond market and pricing information has made consumers more informed and that has required jewelers themselves to be more professional and more informed in dealing with them.
After the Christmas buying season ended with satisfactory sales but without the customary boom, Israeli manufacturers shifted their attention back to the East in preparation for the Chinese New Year in February and it appears that’s where their focus will remain.
“We expect that in 2011, the East will continue to grow as the economies in India and China grow,” Siman-Tov said. “There is a forecast for growth and there is hope.”
The Marketplace
• Trading is stable with strong interdealer activity in the bourse.
• Supply shortages are fueling demand in a broad range of goods, from 0.20 carat to 5 carats in H-I, SI.
• Demand for 0.90 carat to 1.50 carats is stable.
• Demand is strong for 3-carat, H+, VS2+ and for 5-carat, DIF and 5-carat, H+, SI1 stones.
• Premiums for cleaner Triple EX goods have risen.
Article from the Rapaport Magazine - January 2011. To subscribe click here.