The year started on a positive note in January for Israel’s diamond traders, with demand for polished diamonds in the Far East spurring activity. However, shortages of goods are holding back trading and have emerged as the main concern for both dealers and manufacturers.
“There are not enough goods on the market and you feel the shortages in Israel. We increasingly have to look overseas to find goods,” said Michael Aghbashoff, president of Denir Diamonds and Jewels, a diamond and jewelry manufacturer of all shapes and sizes. “Either people are not manufacturing anymore or they are not keeping the same amount of stock that they used to.” Aghbashoff stressed that larger volumes are needed, not only to supply the market, but also to ensure better profit margins for manufacturers. High rough diamond prices have caused manufacturing margins to slim over the past year.
Rami Birenbaum, a wholesaler and polished diamond dealer, noted that dealers also are facing tight margins because unavoidable high expenses, such as travel and laboratory grading costs, are increasingly cutting into their profits. “The market is positive at the moment but, while business is growing, the bottom line in terms of profits is smaller,” he said.
In order to acquire sufficient volume of goods, Birenbaum has focused his buying activity on the Indian market which, he said, has the volume and sufficient local competition to provide better terms for buyers. In turn, he sells direct to the U.S. and to Israeli clients who service the Far East market. Birenbaum stressed that demand is being driven by Far East buyers, with many requests for H-L, VS stones, which are preferred by that market.
Far East Growth
Benny Meirov, president and chief executive officer (CEO) of M.I.D. House of Diamonds, a manufacturer and distributor of polished diamonds in all shapes and sizes, noted that while the U.S. is still the most important market for Israel’s trade, growth in the East compensated for the declines experienced in the West during the worldwide recession.
“The strongest growth has been in Hong Kong, which sells to the Chinese market,” Meirov said. “It’s also a less seasonal market — it is strong there throughout the year.” Meirov explained that M.I.D. began investing in the Far East a few years ago by opening offices in Hong Kong and focusing on developing good customer relations there.
M.I.D. ranked as Israel’s third-largest exporter in 2010 behind Lev Leviev Diamonds (L.L.D.) and Leo Schachter Diamonds, according to a list of the country’s top exporters published by the Ministry of Industry, Trade and Labor. Overall, Israel’s polished exports, after returns, grew 48 percent year on year to $5.83 billion in 2010. Exports to the U.S., the top export destination, rose 54 percent to $2.4 billion, while exports to Hong Kong increased 42 percent to $1.49 billion. However, while Israel’s 2010 exports to the U.S. were 36 percent below 2007 levels, exports to Hong Kong were 14 percent above the levels of four years ago, confirming the growth trends in these respective markets.
Internet Opportunities
Meirov stressed that M.I.D. would continue to focus on the Far East but is also placing a strong emphasis on using technology, via the internet and mobile applications, in its strategy moving forward. “The internet is clearly the future. No other medium gives you such easy access to so many customers,” he explained. “Technology gives you a great opportunity to market stones and the more advanced companies can really take advantage of it.”
Aghbashoff agreed and noted that even though the trend to sell via the internet has been growing for some time, the momentum has strengthened in the past year.
Lingering Concerns
In addition to significant shortages of polished goods, and low profit margins, high rough prices are a major cause for unease among manufacturers. “I am somewhat concerned that rough increases will bring more speculation to the market and create a bubble like we had in 2008,” Meirov said. “Stability is the best situation for the diamond industry but I feel that a small bubble is developing in the rough market.” Aghbashoff also warned about speculation in the market and stressed that the lesson from the 2008 crash for manufacturers was to be more conservative in buying.
Still, most traders appeared confident that 2011 would be a positive year for the trade. “We’ve had the best January we’ve had in a number of years so I believe that 2011 will be a good year,” Birenbaum said. “But the challenge for us remains to raise our volumes.”
The Marketplace
• Trading has improved in the Israel Diamond Exchange (IDE).
• There is a significant shortage of polished stones, especially in fine-quality, more expensive goods.
• Sellers note tough credit demands from U.S. buyers.
• Demand is strong for commercial-quality SI stones.
• Demand is good for the range of goods from 0.60 carats to 3.99 carats in H-L, VS-SI.
• Demand for larger stones above 4 carats is weaker.
Article from the Rapaport Magazine - February 2011. To subscribe click here.