Large-Size Diamond Market Under Pressure

Q&A with Amir Tiroche, Owner and CEO of Tiroche Diamonds

Jul 3, 2015 9:59 AM By Ronen Shnidman

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RAPAPORT... Amir Tiroche is the owner and CEO of Tiroche Diamonds, which specializes in polishing diamonds larger than 10 carats. Tiroche has been a member of the Israeli diamond industry for nearly 40 years and recently shifted his company’s marketing focus from manufacturing primarily for the local dealer market to becoming a global business-to-business supplier.

Rapaport News: How did you start out in the industry?

AT: My family members were antique and art dealers before they moved to Israel, from Paris, around 1948.

I entered the diamond industry in 1976 after close friends of my parents offered me an opportunity to get into the business. My first job was as a cleaver, splitting rough diamonds when it was still done by hand.

Around 1987, lasers started to be used in diamond cleaving. Everyone wanted them but there weren’t enough machines in the market. I saw the demand and how long I would have to wait to get access to a machine, so I decided to buy one myself. Pretty soon all sorts of customers came to me from the bourse, so I bought another machine and then another. From these lasers I made a living for seven years.

After a while, people would start to give me parcels without marking the stones for laser-cutting. I thought it was a one-time thing, so I would go through the stones, mark them off and put them through the machines. But I got more parcels of unmarked stones and the time I spent marking them, free of charge, kept growing.

In 1995, I realized that people were happy with my service so I decided to go into manufacturing myself. I joined the bourse and became a polished manufacturer and exporter, thus ending my work in the laser-cutting business.

RN: What is your manufacturing niche?

AT: When we started manufacturing we focused on marquise-shape, 1-carat to 2-carat diamonds. Marquise cuts were very popular at the time but we gradually moved into cushion cuts and rounds as well.

Today, our focus is on large diamonds. We only process rough stones larger than 10 carats and sell the resulting polished.

Our product line has long been large, polished diamonds. However, when you polish these stones it creates a significant number of smaller pieces of rough that can be polished into smaller diamonds. We used to sell most of these smaller pieces of rough to other polishers but we have adapted to current market conditions by polishing these pieces as well.

RN: How do you decide what fancy shapes to polish?

AT: Our company doesn’t manufacture based on momentary changes in demand. We buy millions of dollars’ worth of rough every month and we don’t necessarily know what the final result of the polished diamonds will be. We know what we want to produce but not necessarily what will happen.

This is a fundamental challenge in diamond manufacturing and part of the reason there is an imbalance in the market right now.

We determine the final shape of the diamond based on the individual piece of rough. Market demand is only a secondary consideration. In a case where you have a rough diamond that you can really polish into two different shapes equally well, then we would take a look at what is more in demand.

If we know that we will need a specific shape or category of polished, we will place an emphasis on acquiring the relevant type of rough and may even offer a slightly higher price to ensure that we get it.

Every stone that doesn’t sell is placed in inventory and waits for its time.

RN: How do you determine your bids when purchasing rough?

AT: Today large-size rough diamonds are mostly sold by tender and there is a large element of chance at these tenders. You make an offer and sometimes it goes your way and sometimes it doesn’t.

The larger the stone, the wider the potential difference between bids at the tender. It becomes more speculative and you can have bids that differ by as much as 100 percent because each polisher will envision the stone’s potential differently. Everyone works based on their experience and what they envision for the stone based on its parameters before they come up with a bid price.

RN: How do you determine which tender to go to?

AT: It really comes down to the amount of energy we have. Sometimes we participate in 10 tenders a month. But it can be very difficult to continually travel someplace new every week and there are times when I am abroad twice in the same week.

You receive your first invitation to participate in a tender after you develop a track record in the industry. The producers want to sell as much as possible but they also don’t want to waste their time. They want to invite companies willing to spend significant amounts of money on procuring rough.

If you go to a tender and the people running the sale see that you are wasting their time they won’t invite you again. If they see that you are buying millions of dollars’ worth of rough every month you will be sure to be one of the first people they invite to their next tender, and so you gradually develop personal relationships with the suppliers.

RN: How do you market your polished?

AT: We sell our polished diamonds through our sales people, at select trade shows and online. Each sales channel is important.

This is one of the reasons why I brought my son Alon into the business. I already travel practically every week to buy rough, so to add sales trips for polished as well would be too much. He helps me with the marketing and managing our relationships with our buyers.

In the past we sold more to dealers in Israel, but then the local dealers reduced the amount of inventory they were willing to hold. They’ll buy to fill an existing order but they no longer buy much for their own stock. When these dealers stopped buying goods regularly, we were forced to look outside of Israel. As a result, we made a strategic decision to place more resources into marketing and sales.

I used to sell many of my polished diamonds through a marketing and distribution company, but a year ago I decided to develop our sales and marketing under my own brand name.

RN: What are the biggest challenges facing diamantaires selling large stones today?

AT: I don’t think the industry is in a temporary downturn. The current status quo will remain as it is for a while.

I think buyers’ preferences have changed a bit. When it comes to large stones, we require a constant flow of newly-rich people because we aren’t selling a perishable product. Every stone we polish and sell is one more stone that is in the market. Without new buyers we will be selling a larger number of stones to the same people.

The problem today is that many of the newly wealthy are people from fields like high-tech. They like to spend their money on different things compared with people in more traditional industries, like the energy sector. The newly wealthy would prefer to buy a piece of land, a house or an expensive play toy, like an interesting car, than a diamond. They have a different mentality.

Meanwhile, problems have developed in areas that typically provided new clients for large stones. The rich from the energy industry have seen their wealth plummet 50 percent in the past year, along with oil and gas prices. Strict regulation has also led to a decline in the high-end luxury consumption in China. In Russia, the ruble has lost half its value, while things are moving cautiously in the U.S.

Many in the diamond industry think the current situation will lead the weaker firms to exit and give more breathing room to those that remain. I think that dealers that buy and sell polished, at least in the Israeli market, will continue to have difficulties. Their business model does not generate profit margins that would justify their continued existence.

Dealers need a buoyant market in order to survive and develop. It’s very difficult for them to operate in the current environment. In this respect, they are very lucky that interest rates are low. If rates were higher, it would be a catastrophe.

When I go to a rough tender these days, I sometimes prefer to keep my cash and not take the goods even if on paper I see a potential to make profit on the rough. Profit on paper is not the same thing as realizing the profit.

The problem is that it can take a long time until the polished stone is sold and the money comes back because of the current difficulties in the market. In the meantime, I can put the money to use in many other ways besides diamonds, like real estate, stocks, bonds, etc. Diamonds are a small niche, but they are also something I know how to do well. I can keep things going even when times are difficult because I have an advantage in this niche from my many years of experience.

RN: Where do you see your company in 5 years?

AT: Tiroche Diamonds is transitioning from importing and selling rough and supplying polished to the local market, to marketing our polished inventory on the global stage. In that regard, we are also developing our production of smaller stones and not staying exclusively in large stones. Our transition to global marketing and sales will take a while, but it is a strategic decision to which we are committed.

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Tags: fancy cuts, Israel, large diamonds, polished, Ronen Shnidman, rough, tiroche, tirosh