As diamond markets stabilized in December and January, Israeli businesses maintained a positive outlook for 2012, even though the economic forecast remains guarded. They were encouraged by steady sales to the U.S. in the past two months, which compensated for the relative quiet that was evident in the Far East.
“We need to realize that diamonds will sell even if the market is volatile,” said Benny Meirov, president and chief executive officer (CEO) of MID House of Diamonds, a polished diamond distributor. “You have to be ready to buy right and sell right, which we managed to do in 2011. Last year was a great year and we’re hoping for the same in 2012.”
Great Numbers
MID, which ranked as Israel’s second-largest exporter on the list of the top 25 net polished diamond exporters for 2011, as compiled by the Ministry of Industry, Trade and Labor, increased its exports by 49 percent during the year. Israel’s total polished exports rose by 23 percent to $7.2 billion in 2011, according to the ministry.
“We had great numbers and I don’t see any reason, good or bad, that the market should change,” said Yehuda Sayag, senior vice president of the Israel Diamond Exchange (IDE) and president of Eran Diamonds, a manufacturer of .10-carat to 10-carat stones that ranked 20 on the top 25 list. “In the bourse, there is activity as usual.”
Most diamantaires who spoke with Rapaport Magazine were well aware that the annual growth totals were attributable to strong trading in the first half of the year before the market turned in August. They reported that trading improved from October on and was stable in January, even if it was slightly softer than January 2010, due to lingering uncertainties about the global economy.
“If the economy is stable, the diamond business will be great,” Meirov said. “If it declines, business will be tough. But I’m optimistic.”
Balancing Act
Sayag noted that demand for midrange and cheaper stones has continued in the U.S. but demand for better stones in the Far East has softened. While many acknowledged that selling to the Far East has slowed, they continue to view it as the most important growth market. Meirov reported that MID is planning to open an office in Shanghai during 2012, and he maintains that raising the company’s global presence helped generate sales volume. Similarly, Sayag explained that while selling to China is difficult at the moment, the Far East market will continue to drive growth.
Government data showed that Israel’s trade with the Far East is catching up to the U.S., which remains the biggest market for Israel’s polished diamonds. Polished exports to the U.S. increased 17 percent to $2.8 billion in 2011, while exports to Hong Kong grew 27 percent to $1.9 billion.
Avraham Eshed, president of Eshed Diam, a manufacturer of better-quality stones above 3 carats that was listed in the 21st spot on the top 25 list, agreed, but added that the market remains in balance. “When the U.S. market was down, the Far East was up and now that the Far East is slow, the U.S. has strengthened,” he said. “We had a lot of action in the U.S. in December and January and that will cover what we were lacking in the Far East. But even when the Chinese market is a bit soft, you still have tens of stores opening there each month.”
Growth Forecast
Eshed noted that the mood among buyers is improving and explained that while it takes time for markets to come back from any shock, people are starting to spend again. He stressed that the outlook is particularly strong for the higher-end goods, in which his company deals, given the scarcity of supply in the market.
“Prices of the big stones have been strong even in the past six months simply because there are no goods in the market,” Eshed explained. “The smaller goods already have corrected themselves, having declined by 10 percent to 15 percent since August, and I don’t believe they will go down more.”
Still, dealers detect weakness in the rough market and say dealer trading has slowed, evident in the fact that goods in the dealer market are selling at discounts. Local manufacturers reason that rough trading overheated in the first half of 2011 and that prices continue to correct toward equilibrium. The proof is in goods from the two main suppliers, De Beers and ALROSA, which remain high relative to the polished. Dealers report that margins continue to be tight but are heartened that rough prices have softened.
“Prices are more reasonable and we have reason to be optimistic at the start of 2012. There are people who are saying that it will be a tough year, but I think it will be very good for the diamond industry,” Eshed said, predicting that growth “will start after the Basel show in March and it won’t be crazy. But we will see the uptrend come back.”
The Marketplace
- Polished trading, driven by U.S. demand, is stable.
- Dealer activity in the rough market remains relatively weak.
- Economic concerns continue.
- Demand is good for certified pointer goods and carat sizes in VS-SI.
- Demand for VVS stones remains soft.
Article from the Rapaport Magazine - February 2012. To subscribe click here.