RAPAPORT... Israeli diamantaires are downplaying the impact the weakening dollar is having on their businesses, but acknowledge the trend as an additional factor to contend with in their growing list of woes. Shortage of rough and rising prices remain their primary concerns.
The Israeli shekel has gained approximately 16 percent against the greenback since the credit crisis hit the United States in August, and traded at an average exchange rate of 3.6 shekels to $1 through February. For local diamond manufacturers, the currency volatility means their shekel-based expenses in Israel are on the rise, thus cutting into already reduced profit margins. “Things are very difficult at the moment and diamantaires are restricted in their manufacturing,” said Avi Paz, president of the Israel Diamond Exchange (IDE). “It’s not just salaries that we pay in shekels, but other expenses, such as insurance and rent.”
Banking on Interest
Paz joined with Israel’s export community in calling for more aggressive action by the Bank of Israel in lowering interest rates as a means of slowing the shekel’s rise. Bank of Israel Governor Stanley Fischer kept the rate unchanged at 4.25 percent for February, explaining the decision was intended to bring inflation to within its target range of 1 to 3 percent by the middle of 2008. Israel’s Consumer Price Index (CPI) rose by 3.4 percent in 2007.
In pressuring Fischer to lower interest rates, local exporters warned that, based on current exchange rates, they stand to lose $4.5 billion in exports and 35,000 net jobs in 2008.
Fischer answered industry’s call for March, cutting the rate by 0.5 percentage points to 3.75 percent, noting that January’s CPI had grown more modestly than in the previous two months and was expected to drop in the next two months.
Following the rate cut announcement on February 25, the dollar gained 1.3 percent against the shekel.
Still, diamantaires expressed their concerns. An Indian diamantaire operating in Israel, Sanjay Shah, chief executive officer (CEO) of Prime Diam, which specializes in rounds and fancies of 75 pointers and up, said it is becoming increasingly harder to operate in Israel. “It’s a domino effect,” Shah said. “Our expenses are becoming much higher because we pay most of them in shekels and general prices are rising due to inflation.”
A No-ShowWhile talk of layoffs is subdued in the Ramat Gan Bourse, Paz recognizes that diamond dealers will have to make some sacrifices this year and he pointed to their participation in trade shows as one way to curb expenses. “Shows are very important but they’re also very expensive so I have called on manufacturers to be more selective in their travels,” Paz said.
Others played down the impact of the weak dollar, saying that labor costs are proportionally too small to make a difference. Uri Schwartz, of A. Schwartz & Sons, explained that because Israel specializes in more expensive goods, the cost of labor is just 1 to 3 percent of total expenses. Centers such as India, which deal in smaller stones in large quantities, he added, have greater reason for concern with regard to the weak dollar.
Shah added that, unlike Israel, India has a large domestic market for diamonds, which makes currency volatility more of a factor.
Rough Times
Israeli diamantaires are in a constant battle to find the right rough at the right price. Tsvika Kaufman, CEO of E.F.D., said the biggest challenges facing Israeli manufacturers are the scarcity of rough and higher prices.
Similarly, Michael Aghbashoff, president of Denir Diamonds Israel, explained that by the laws of supply and demand, the shortage of big stones means that producers can get away with “demanding very high prices.”
“There just aren’t enough stones in the market,” Aghbashoff said. “Before, when you got an order for a 20- or 30-carat stone, you could supply it. Now you really have to look hard — and they’re killing you with the price.”
Harry Oppenheimer Museum ReopensThe Israel diamond industry has inaugurated the renovated Harry Oppenheimer Diamond Museum in Ramat Gan. The museum, which had been closed for renovations for the past 18 months, opened in July 1986 with Oppenheimer, who was then chairman of DeBeers and who lent his name and financial support to the project, in attendance. A second phase of expansion is currently under way.
De Beers continues to support the museum, both financially and in lending pieces for exhibition. The museum reopened with a display entitled “The Root of Diamonds,” showcasing the history of jewels mined in South Africa. Diamonds currently being exhibited include jewelry designs by participants in the De Beers Shining Light Award competition and a host of famous diamonds from the country’s mines, as well as some polished by Israeli manufacturers.
The Marketplace• Traders are turning to European
markets as they try to buy diamonds in dollars and sell them in euros.
• Traders are optimistic over upcoming Far East shows.
• High prices for large goods have created demand for 2.5-carat goods, which are selling at a relative discount to 3 carats.
• K-M colors in large goods are in demand as an alternative to high-priced, large, quality goods.
• Demand is good for clean goods in VS+ and fancy colors.
Article from the Rapaport Magazine - March 2008. To subscribe click here.