As market conditions improve in the diamond industry, Israeli cutters are carefully watching global trends to assess where they should focus their trading activity. Despite the mixed messages from the different major consumer centers, recent increases in polished prices fueled a general rise in confidence in the Israeli market.
Moshe Barzilai, who manufactures and deals in 0.90-carat to 5.00-carat stones, noted three trends currently influencing the diamond market: growth in the Far East, the steady recovery of the U.S. economy and the debt crisis in Europe.
“Europe is being battered by the currency so it’s hard for them to buy when the euro has dropped to such an extent,” Barzilai said. Joe Brima, owner of Joe Brima Ltd., a manufacturer of fancy cut and fancy color diamonds, agreed that Europe remained “very diluted,” both compared to what it used to be and compared with the Far East and the U.S.
“That has nothing to do with the debt crisis in Europe, because the diamond industries in those affected countries are too small and the economic crisis therefore hasn’t hit our industry yet,” Brima said. He added, however, that Europe’s debt crisis should serve as a wake-up call for the U.S., which also is carrying large debt. “If we consider the effect that Greece had on the global markets, imagine what would happen if the U.S. defaults?” Brima said.
Despite signs of an improving U.S. market, Barzilai said the trend toward the Far East among Israeli manufacturers continues to strengthen. He added, however, that many of the weaker U.S. players left the market during the recession, leaving the more serious buyers.
U.S. Still Major Market
Gil Melamed, a partner at Vulcan & Co., a manufacturer of fancy shape, better-quality diamonds, stressed that the New York market has improved more than the market on the West Coast, where businesses are slower with payments and tough on terms.
Despite the general shift to the East, all manufacturers who spoke with RDR viewed the JCK Las Vegas show as an important test of whether the U.S. market will boost their sales for the remainder of the year. Moti Ganz, chairman of the Israel Diamond Institute Group of Companies (IDI), stressed that the expected U.S. economic recovery has important consequences for the Israeli industry since the U.S. remains Israel’s leading market. Approximately 38 percent of Israel’s polished exports went to the U.S. in the first quarter of 2010.
JCK as a Selling VenueHowever, the verdict is still out on JCK this year as many view it more as a networking event, rather than a selling event. “In the past two years, JCK has been more about socializing and networking,” Melamed said in the run-up to the 2010 show. He noted the difference between the Hong Kong shows, where “people come to buy,” and JCK, where buyers are more involved in planning their business strategies. At JCK, he explained, they come to see the collections that they may buy in September in preparation for the Christmas season.
For this reason, Melamed stressed the advantage of participating in the Israel Diamond Pavilion, hosted by the IDI, at JCK. “We are very happy with being under the IDI banner as they do marketing on your behalf and bring in buyers,” Melamed said. “If you want to sell, you go in the IDI pavilion; if you want to network, the general U.S. halls are better. But we want to sell.”
IDI hosted 25 companies in the Israel Diamond Pavilion at JCK this year, with another 25 Israeli companies exhibiting elsewhere throughout the show. The numbers are up from 2009, when a total of 43 Israeli companies attended JCK, but below the 62 exhibitors who participated in 2008.
IDI Managing Director Eli Avidar said a great deal of IDI’s marketing efforts are devoted to developing the Israeli industry’s ties with the U.S. “That’s why we set up IDI-New York, an office located in the Diamond District, which is geared to facilitating connections between the Israeli diamond industry and U.S. buyers,” Avidar explained.
Prices RisingEven with signs of better prospects in the U.S., however, most expressed concern that high prices and shortages in the rough market were constraining local cutters. Brima stressed that manufacturers consistently have to compete with rough prices, while Melamed noted that it has become almost impossible to manufacture the expensive goods at a profit.
Still, most believe the upward price trend will continue. “The whole atmosphere is speculative, with expectations that prices will go up and because of this, big dealers are holding rough back, which is creating shortages,” said Melamed. He added that this trend has created a good market in the Israel Diamond Exchange (IDE) for investing in diamonds. “Activity in the bourse is very strong and local dealers can sell better here than they can abroad.”
Nevertheless, Brima warned that Israel needs to return to its roots as a manufacturing center if it wants to compete today. “I feel that we need to strengthen and market Israel as a manufacturing center again, to bring clients here,” Brima explained. “We have strayed from our niche, which is good-quality manufacturing, and we need to bring that back.”
The Marketplace
• Trade is improving in the bourse, with stronger prices than in consumer markets.
• Demand is good for 1-carat and 1.5-carat, I+, VS+ diamonds.
• 3-carat and 5-carat+ stones are trading at high prices.
• Fancy colors are on the rise in VVS-VS goods.
• Pears and princess cuts are strongest among the fancy shapes, with cushions improving.
• Rough supply shortages and high prices are holding back manufacturing.
Article from the Rapaport Magazine - June 2010. To subscribe click here.