RAPAPORT... Israeli manufacturers saw little logic in recent market trends but appeared determined to keep business activity flowing through the end-of-year season. “I’ve given up trying to understand what’s happening in the market as there’s no correlation between prices for rough and polished, whether they go up or down,” said Simeon-Lee Loon, market manager of Waldman Diamond Company (WDC), a rough sourcing company and manufacturer of polished diamonds. “We deal with the goods that we have and try to get our orders to customers at a price that’s reasonable to them, and try to make a profit in between.”
Manufacturers bemoaned the high price of rough at the moment, following further increases reported from the Diamond Trading Company (DTC) and Rio Tinto October-November sights and from the BHP Billiton tender, as well as a shortage of goods on the market. Abraham Fluk, chairman of Yoshfe Diamonds International (YDI), explained that while the rough market on its own may justify the price hikes, given the recent resumption of manufacturing and ramp-up of production, demand trends in the polished market do not substantiate the increases.
Buying Futures“The market is such that if you buy rough in the morning and were to have the polished ready to sell in the evening, you would lose money, and it shouldn’t be like that,” Fluk explained. “You should be able to make an immediate profit, but we are dealing in futures at the moment and manufacturers are bearing the brunt of speculation in the market.”
Ami Parter, director of Belisdiam Ltd., a specialist manufacturer of larger diamonds, agreed that dealers are buying rough with the expectation that prices will rise further. He added that Israeli dealers, along with their Indian counterparts, are dealing at higher levels than the rest of the market. As a result, Parter noted a significant shift toward interdealer trade. “You see much better prices within the trade than at market so, whereas before we were selling about 25 percent of our goods to the trade and the majority to the market, today the ratio is more 60/40 percent in favor of the trade,” Parter said.
Parter explained that this trend indicates there are not enough manufacturers of the goods in which he deals in Israel. Belisdiam shifted from manufacturing bigger stones before the economic downturn to focus on sizes of 1 carat to 5 carats, “where the demand is,” he added.
Moving EastIsraeli buyers are predominantly taking the goods to Hong Kong to sell right now, according to Parter, both to fill existing orders and in preparation for the Chinese New Year in February. Most Israeli diamantaires agree that, despite the Christmas season in the U.S. and Europe, the Far East is the hot market currently.
“We operate all over but the only market behaving normally at the moment is the Far East — China, Hong Kong and some of its neighbors,” Fluk said. “The domestic market in India is also showing positive signs but the rest are weak.”
Loon noted that the Israeli market has been very quick to react to global diamond market changes, whether they are price fluctuations or demand trends. This is evident in the number of companies that traditionally operated in the U.S. and now have a presence in the Far East.
Facilitating that shift toward the Far East, the Israeli diamond industry — represented by the Israel Diamond Institute (IDI), the Israel Diamond Exchange (IDE) and the Israel Diamond Manufacturers Association (IsDMA) — signed letters of cooperation with the Panyu People’s Government in November during a visit by a senior delegation from Panyu to Israel. Moti Ganz, IsDMA president and IDI chairman, noted that Panyu is renowned for its diamond manufacturing facilities and that some Israelis have already begun to manufacture there.
No Christmas BoomWhile many manufacturers are focusing their attention and their hopes for sales on China during the fourth quarter, they appear to have become accustomed to a lower level of trade with the U.S. “The U.S. is slow, which is what most people expect right now,” Loon said. “There is not going to be a boom for Christmas.”
Still, Loon noted that there are more goods flowing now than during the rest of 2009, adding that the industry’s reliance on the fourth quarter has diminished gradually in recent years. He reported that retailers are being very selective in their orders, with more inquiries coming through for single-stone purchases and fewer inventory orders from stores.
Looking ahead, all agreed that it is difficult to predict how the market will play out in 2010, but they are hoping for stability in prices and demand. “We’d prefer to see gradual increases rather than the booms,” Loon said. Either way, Fluk stressed that he was confident the diamond industry would eventually prosper again. “I’m confident for 2010 because I grew up in the diamond industry and have therefore seen good and bad times,” Fluk said. “But you have to be flexible and adjust quickly to market conditions.”
The Marketplace- The market is steadily improving but remains below levels normally seen in the fourth quarter.
- Sellers are still facing strong price resistance from buyers.
- Demand is good for 0.5- to 3-carat G -, VS-SI goods.
- Hong Kong is showing strong demand, particularly for VS2+ goods.
- Demand has improved for high-color F+ and high-clarity VS1+ stones.
- Demand for fancy colors is starting to improve, especially for fancy yellows.
Article from the Rapaport Magazine - December 2009. To subscribe click here.