RAPAPORT... The market in Israel was “seasonably” quiet in July as diamantaires slipped into summer vacation mode, but many were already thinking ahead to the September Hong Kong show as their next stop to boost sales. “July and August are quiet months due to the summer vacations and it will be interesting to see what happens after August,” said Eitan Mor, director of Mor Brothers Ltd., which manufactures larger rounds and fancies of 1 carat and up. “We have the Hong Kong show, which I hope will be okay, and I hope it will be better than 2008, which was weak.”
Most diamantaires who spoke with RDR agreed that the Asian market is currently pushing global diamond demand because the market there has been less affected by the economic crisis than the U.S. Mor noted one reason is that the Asian market traditionally has been less reliant on memo trading. “In the U.S., there is a problem with memo and in today’s market, you have to deal in cash,” he said. “In Asia, buyers pay in cash, which is a good mentality to have and one reason the economy is strong there.”
Banking on CreditThe trend toward cash trading has been an adjustment for many, particularly since the banks have tightened their lending to the industry. “The banks need to change policy and make it easier for us to gain access to money,” said Mordechai Turgeman, owner of Turgeman Diamonds, manufacturer of the Brilliant Star cut, in which the diamond’s star pattern is visible to the naked eye. “We buy rough for cash and it takes time to manufacture and turn over a stone before we can sell it to get our money back in order to keep the cycle going of buying new stones to sell again. It is the banks that have brought the industry to a halt.”
The lack of liquidity has been fueled by the recent increases in rough prices and shortages in the market for certain categories of rough. “While rough prices have been increasing, the polished is not selling,” explained Doron Itzhakov, manager at Hadad Diamond Company, a manufacturer of 1- to 50-carat diamonds in all shapes and colors. “People are buying rough to move it quickly and make small profits.”
Itzhakov added that profit margins on polished are very low at the moment and a gap has developed between “ask” and “offer” prices. He noted that demand is good for 1-carat, F+, VS+ stones, particularly from the Far East, while there are still very few orders for larger items above 5 carats. Hadad changed its focus a bit during the recent downturn, he explained, to focus on smaller stones and the company is working more on 1- to 1.5-carat sizes.
Low InventoriesItzhakov stressed that few diamantaires are buying to increase inventories at the moment. Turgeman agreed, adding that buyers have become very specific in their requests. “Buyers want to physically see the stones more often than before because of their specifications. For anything below VS clarity, they want to make sure that it suits their needs,” Turgeman said. He noted that 0.50 to 2 carats in H-I, K, L and M colors are popular at the moment.
Uri Schwartz of A. Schwartz & Sons, which manufactures 0.10 to 5 carats, added that the current trend to buy only what one needs was necessary to bring inventory levels in line with the new, lower turnover levels. “People have been acting responsibly throughout the pipeline in the past two months and they are not finished adjusting yet,” Schwartz said. “Although profits are small, this is necessary for all of us to stay in business.”
U.S. Wake-Up CallSchwartz added that with this “responsible” approach, he remains optimistic that the market will grow gradually and that even the U.S. market will “wake up” after September. Others also expressed confidence that the U.S. could improve in the fourth quarter of 2009 and have adjusted their strategies accordingly. “We saw at the Las Vegas show that we had orders and that the medium-sized goods were doing okay in the U.S. So we have changed our focus to those goods,” Turgeman said.
Still, as optimism creeps up, Israelis are increasingly pinning their hopes on the Far East. “The long-term trend in the market has to be positive and I think in two years time, we will look back and laugh at this period,” Itzhakov said. In the meantime, the Chinese see diamonds as an investment with good potential and Itzhakov feels “The Chinese will push demand and they don’t see money. They see diamonds!”
The Marketplace- Higher rough prices and low demand for polished slowed the market.
- Diamantaires were preparing for summer vacation.
- The Far East is spurring demand while the U.S. is quiet.
- Demand is good for 1 carat in F+, VS+ but very low for large stones above 3 carats.
- H, I and K, L and M colors are popular.
- Cushions are growing in demand.
Article from the Rapaport Magazine - August 2009. To subscribe click here.