RAPAPORT... Israeli diamond manufacturers appeared relieved that holiday retail sales improved in the U.S. but remained cautious about their prospects in that market for 2010. Many were hoping that U.S. retailers would have finally depleted their old stock, which they held through 2009, and will start buying again in the new year. However, despite the better-than-expected Christmas sales, it appears Israelis are not getting the U.S. orders they had hoped for.
“Christmas was much better than the previous months but there is still hesitation in the U.S. to buy stock,” said Carmel Lustig, marketing and sales director at Lustig Brothers, a manufacturer of rounds and fancy cut diamonds. “They are buying very limited quantities.”
Lustig added that the recession in the U.S. was still fresh in the minds of many Israeli manufacturers after they saw payment delays and some bigger customers there forced into bankruptcy. “So we, and I think many others, decided not to open any new accounts in the U.S. for now,” he said.
No Stock
Avi Mandler, a partner at Beta Diamonds, which specializes in rounds and fancies of 0.5 to 5 carats, noted that U.S. clients still have old stock from precrisis days, when prices were higher, so it is therefore more expensive and difficult to sell. “The U.S. is quiet, even after the positive Christmas they had there,” Mandler said. “But it’s still the largest market — and will continue to be.”
Despite the fact that Israel’s polished diamond exports to the U.S. fell 42 percent to $1.55 billion in 2009, the U.S. still accounted for 40 percent of total exports.
In a vote of confidence for future growth in the U.S., four of Israel’s larger diamond companies — A. Dalumi Diamonds, Sahar Atid Diamonds, Yerushalmi Bros. and Yondor Diamonds — in January signed contracts to purchase office space in the International Gem Tower (IGT) going up in New York City’s 47th Street Diamond District. They will occupy a combined space of 15,000 square feet in the new building.
Focused on the Far East
Although local manufacturers have focused on penetrating the Far East market in recent years, the country’s polished exports to Hong Kong dropped 27 percent to $1.04 billion in 2009, while total polished exports fell 37 percent to $3.92 billion.
But the push toward Hong Kong is continuing and Mandler said that the market has shifted to being driven by the Far East, which is growing at a faster pace than the U.S. But Hong Kong buyers are looking for very specific goods, and are demanding their prices on those items, he explained. Lustig noted that there is a gap between prices in Israel and in Hong Kong, where “goods have become too cheap to make a profit.”
As a result, Lustig stressed his concern about the extent to which rough prices have increased, while polished prices have moved at a slower pace. “It’s like the prebubble period and you see manufacturers holding stock in anticipation of further increases,” he said. “I’m afraid of another downturn.”
Lesson Learned?
Yosef Asherian, president of Asherian Diamonds, a manufacturer of 0.50 carats and up in all shapes and makes, disagreed, insisting that he believes the market will continue to improve steadily. “I think the market will be a lot more stable at the end of 2010,” Asherian said. “We have to remember that diamond professionals lost fortunes during the crisis. They are not buying for stock anymore. So I don’t think there will be another downturn because there isn’t enough money in the market at the moment.”
Unlike other companies that moved to the Far East during the crisis, Asherian remains focused on the U.S. market, where his company has a strong client base. But he also has sought to improve his position in Israel and in Europe. Noting that things have changed since the crisis, Asherian stressed the importance of keeping in touch with clients “even just as a matter of maintaining relationships,” especially as the market is slowly recovering.
While Mandler agreed that people are far more cautious in the way they are doing business today, he isn’t convinced that everyone has learned the lessons of the downturn, particularly with regard to the rough market. He pointed to Indian manufacturers’ ability to buy rough without strong regard to price, given their easier access to bank financing, while Israelis are more conservative in their buying.
All agreed that the bourse in Ramat Gan has grown busier and is very active at the moment, which is contributing to a more positive outlook among manufacturers. “While rough prices are a headache, I don’t see the market or economic trends improving to the same extent,” Lustig said. “Still, we’re expecting a much better year.”
The Marketplace
• Trading is better than at this time in 2009 but buyers are focused on specific stones, rather than stock orders.
• It continues to be difficult to buy rough, due to high prices. Traders are hopeful that the near-term influx of rough will help stabilize the rough market.
• Demand is good for 0.70- to 1.25-carat, D-E and H-I colors in VS1-SI2 clarities.
• Oversizes are in strong demand.
• 2 carats remain weak, while there has been good improvement in 3 carats+, especially F+, VS2+.
• Vivid and intense fancy color diamonds are in demand.
Article from the Rapaport Magazine - February 2010. To subscribe click here.