Rapaport Magazine

Recutting for Profit

Israel July Market Report

By Ari Krawitz


Israeli manufacturers, under pressure because of the high cost of rough, have created a new profit niche in recutting polished diamonds. “They’re buying polished goods because they’re not manufacturing,” said Moshe Barzilai, who deals in .90-carat to 5-carat stones. “Local manufacturers are using their expertise to recut polished. They can’t buy rough because it’s too expensive so they are finding ways to profit by recutting. It’s a source of goods and the secondhand market for recycled goods is enormous, particularly in the U.S.”

Barzilai, who went to the JCK Las Vegas show specifically to buy polished, explained that Israeli cutters are able to use their knowledge to recut polished into a better-quality stone with improved profit potential. He noted that the show offered Israeli cutters considerable opportunity to purchase a wide range of secondhand, or recycled, goods, especially those cutters who don’t have the resources to travel to the U.S. and source directly from pawnshops.

“We’re able to buy at the shows from people who buy from the pawnshops,” Barzilai said. Given the potential size of the recycled market, he indicated that there is sufficient supply of polished to satisfy the current level of demand, even if the quantity of polished coming from manufacturing from rough is down.

TO VEGAS TO BUY

Despite the large Israeli exhibitor pavilion at the JCK Las Vegas show, it was Israeli buyers who made their presence felt this year, somewhat filling the void left by the notable absence of Indian and Far East buyers.

“Israeli buyers came because they saw an opportunity to find bargains,” said Jacob Kattan, a member of the Israel Diamond Exchange (IDE) board and owner of JKD – Kattan Diamonds, which manufactures round and fancy shapes of .50-carat stones and larger. “We sold to Israelis at the show because we had more exposure to them there than in the bourse.” Kattan agreed with Barzilai that Israelis are buying polished because it’s more profitable than manufacturing rough at the moment, given the apparent disconnect between rough and polished prices.

Still, dealers reported that there is a shortage of SI goods and of well-made, better-quality fancy shape stones, both of which sold well in Vegas. Trading at the show, and subsequently in the bourse, indicated that buyers continue to seek more affordable price points.

Roni Stschik, managing director of Majestic Jewelry Ltd., a jewelry manufacturer that utilizes high-tech solutions to present a collection of small stones as one large piece at more affordable price points, acknowledged this trend. “In today’s market, you have to think out of the box and you have to always consider how you can provide added value,” he explained.

Stschik noted that buyers in Vegas waited longer than usual to make their purchases, reporting that sales on the final day of the show were stronger than previous days. “The market’s okay but you do feel there is a lack of confidence out there,” he said. “It seems buyers are looking around more and really doing their homework and checking the goods before buying.”

TIGHT LIQUIDITY

Kattan agreed and suggested that buyers are being more careful because they don’t want to commit to purchases if they can’t obtain the money to pay for them. He explained that tight liquidity in both the manufacturing centers and the consumer markets was holding back trading activity.

Noting that banks everywhere are tightening their lending and trying to increase their margins, Kattan said Israel is no exception. Barzilai added that while there are a few strong, larger local companies who have been able to obtain financing, the small-to-medium size companies were having a tougher time.

Barzilai said trading in the bourse is down from previous years and in relation to other centers. Data from Israel’s Central Bureau of Statistics (CBS) showed polished exports fell
6 percent year on year to $3.32 billion in the first five months of 2012.

VEGAS TO HONG KONG

 “There is activity in the market, but it’s not easy,” Barzilai said. “We are mainly working for the U.S. at the moment.” Vendors at JCK were reasonably satisfied that the U.S. market is stable, even if overall trading was down from a year earlier. But with the arrival of the quieter summer months in the U.S., many were hoping the Far East market, relatively quiet in recent months, would come alive at the June Hong Kong Jewellery and Gem Fair in late June.

Despite their high hopes, many among the large Israeli delegation that traveled to exhibit in Hong Kong went with low expectations, given that it is a comparatively small event. Most view the September Hong Kong show as the more important market indicator, especially since trading in the bourse, and demand in the U.S., also is expected to improve around the time of the show “after the Jewish holidays, the summer vacations and maybe even the U.S. elections have had an influence,” Kattan said.

Buyers, on the other hand, continue to travel to the shows in search of the elusive bargain.

 

THE MARKETPLACE

  • .50-carat to 2-carat SI clarity goods are the best sellers.

  • Fancy shapes are in demand, with shortages of well-made fancies.

  • Demand is strong for princess and cushion cuts in .20 carat to .25 carat in all categories except VVS.

  • The industry focus has returned to selling in the U.S. as demand from other centers weakens.

  • The rough market is difficult and manufacturing profit margins are weak.

Article from the Rapaport Magazine - July 2012. To subscribe click here.

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