RAPAPORT... Israel’s year-end diamond statistics confirmed the weak trading environment that engulfed the diamond exchange in the final quarter of 2008. The data, published by the Diamond Controller’s office at the Ministry of Industry, Trade and Labor, showed polished exports fell 64 percent in December, while rough imports during the month dropped 70 percent. Israel ended the year with polished exports down 12 percent compared to 2007, to $6.24 billion worth in 2008, and rough imports declining 12 percent to $4.48 billion.
Diamond Controller Shmuel Mordechai said the global economic crisis had a major impact on Israel’s diamond trade, particularly as the country relies so heavily on sales to the U.S. Polished exports to the U.S. almost halved in December and ended the year down 6 percent to $8.266 billion. In a countertrend, exports to Hong Kong rose 43 percent to $3.413 billion for the year.
The sudden drop in trade to the U.S. sparked deep concerns among Israeli diamantaires, particularly as reports filter through of a number of retailers across the Atlantic that have filed for Chapter 11 bankruptcy protection as a result of the poor Christmas season.
“We are concerned about everyone,” said Avi Mandler, partner at Beta Diamonds, which specializes in rounds and fancies up to 5 carats plus. Beta Diamonds was listed as one of the 20 largest creditors of Colorado-based U.S. jeweler Shane Co., which filed Chapter 11 in January. “Shane was a great customer of ours for 11 years, so no one knows what will be at the moment. Good companies saw sales fall by up to 30 percent this Christmas,” he added.
Mandler noted, however, that most markets are quiet, particularly for larger stones, while medium-sized diamonds of 1 to 3 carats were “not too bad” and were selling, albeit at larger discounts. He predicted that business would be subdued for most of 2009 and that the market would start to pick up again toward the end of the year. “The market is in shock-and-panic mode right now, but it won’t last,” Mandler said. “Particularly, companies with strong liquidity will emerge stronger from this period — possibly smaller, but stronger.”
Cash is King Again
Mandler stressed that while, in the past two years, cash was not the most important aspect of the trade, today, “cash is king again.” Tighter credit conditions remain at the forefront of the industry’s conscience and Israel Diamond Exchange (IDE) President Avi Paz appealed to Israel’s Minister of Industry, Trade and Labor Eli Yishai to intervene with the Finance Ministry to include the diamond sector in the government’s credit allocation plan, as a means of improving the industry’s standing with the banks.
In a visit to the bourse, Yishai responded that his office would work with the sector to formulate an assistance program in the current crisis. Following the minister’s visit, Mordechai, representing the ministry, met with IDE Managing Director Yair Cohen to begin designing the program.
No Economic Growth
Growth in Israel is reeling, as well, from the global recession beyond the diamond scope. Merrill Lynch cut its 2009 growth forecast for Israel from 1 percent to zero, largely on the back of reduced foreign trade — given that 73 percent of the country’s exports go to the U.S. and Europe — along with tighter credit for Israeli companies. The slowdown is likely to have an effect on unemployment, the financial services company said, which fell to 6.2 percent in 2008, its lowest level in more than a decade. “Unemployment is expected to jump back to 6.8 percent in 2009 and to 7.1 percent in 2010,” Merrill Lynch predicted.
Job cuts were already prevalent in the diamond industry toward the end of 2008. Moti Ganz, president of the Israel Diamond Manufacturers Association (IsDMA), told the local press that most diamond companies had cut their staff by about 25 percent in the final quarter of the year, affecting hundreds of workers at the country’s polishing factories and at offices in Ramat Gan.
Support for War-Torn South
Merrill Lynch said it does not expect Israel’s war with Hamas in the Gaza strip to impact the country’s economy, and neither would elections scheduled for February 10. Similarly, there were no signs that the security situation was affecting trade in the bourse. The exchange, however, did mobilize its support for residents of southern Israel by hosting small businesses from the troubled region to sell their wares on the exchange premises. IDE also donated dozens of TVs, DVD players, games, movies and care packages to furnish bomb shelters under fire.
The Markeptlace
• Trade is running at about 25 percent of the volume at this same time in 2008.
• Medium-sized stones of 1 to 3 carats are moving at large discounts.
• Due to liquidity problems, companies are willing to sell goods at discounts as high as 50 percent below list.
• Large stones above 5 carats are still not selling.
• People are afraid of large quantities of returns after the poor U.S. Christmas.
• A lot of cancellations came in for the Macau show. Those who went reportedly were very disappointed.
Article from the Rapaport Magazine - February 2009. To subscribe click here.