Rapaport Magazine

Sellers’ Market As Buyers Shift Preferences

Israel March Market Report

By Avi Krawitz
Israel’s diamond trade continued to improve in February as the uptrend in polished demand and prices indicated that conditions have become increasingly favorable for dealers. “It’s a seller’s market and there is real demand, which is being inflated by stocking up on commercial goods,” said Emanuel Namdar, managing director of Schachter & Namdar Asia, which specializes in 0.30-carat to 4.99-carat stones. “There are shortages in the market, but I feel that this is not because the quantities are low, but because it’s easier to sell.”

Namdar noted that throughout February, price increases in rough and polished have moved in sync with each other and that prices are being supported by the natural mechanism of supply and demand.

Speculative Market?

Pointing to “a rush for bread-and-butter goods,” Namdar dismissed the popular rumor that there is a speculative trend in the market. “Speculation occurs when there is trading in something that doesn’t have demand down the pipeline,” Namdar explained. “That is not the case today. People are investing in what they need.”

In contrast, Avi Mandler, a partner at Beta Diamonds, which specializes in rounds and fancies of .5 carats to 5 carats, expressed deep concern for rising speculation on prices, particularly driven by the buying practices of Indian manufacturers and dealers. “The Indians have emerged from the crisis in a much stronger position largely because they have access to easy money,” Mandler explained. “While we look at the cost of a stone and its potential profit margin, it seems that the Indians are willing to take a much bigger risk for a small profit. There is speculation in the air and that makes business very difficult for a company that does careful profit-versus-risk analysis.”

Mandler indicated that despite the uptrend in sales and prices, there remains a lag between prices in the manufacturing and trading centers and the consumer markets.

Restocking

Yosef Asherian, president of Asherian Diamonds, a manufacturer of .50 carats and up in all shapes and makes, noted that there are positive signs that the market is starting to accept new price levels and is even becoming used to them. He added, however, that while there has been a recovery in prices, diamonds remain undervalued, given that the U.S. dollar has weakened over the past two years. “I believe there will be stability in the market but for the picture to really improve, the value of the dollar needs to strengthen,” Asherian asserted. “We are not dealing with the same money as before.” 

He reported improving demand in the U.S., where people, although they are not buying the high volumes they used to in order to build inventory, are at least still buying. 

Namdar agreed that restocking in the U.S. was taking place on a much smaller scale, but added that growth in the Far East meant that there is enough room in the market for everyone. In particular, he noted that consumers are showing demand for commercial stones and that there has been a clear shift in quality preferences of Chinese buyers.

“There has been a quiet revolution in China, where SI1 to SI2 stones are now more popular than VVS goods,” he said. “And Israel has responded well to this trend, with dealers changing their sourcing habits in the quality of diamonds they bought.” Namdar noted that there has been significant inflation on .3-carat to 1-carat stones, driven by good demand for these goods.

A Trading Center

Most manufacturers and dealers who spoke with Rapaport Diamond Report noted shortages in the market that are emerging from a lack of manufacturing due to high rough prices. Namdar cited aggressive Israeli demand for rough, even though there is less manufacturing taking place in the country.

“Israel is not a manufacturing center anymore, but there is a hunger for rough because businesses have partnered with overseas manufacturers in India, China, Southern Africa and Russia, and can therefore maintain a strong influence in the market,” Namdar explained. “Furthermore, the skills they have in buying and planning a stone have therefore not been lost.”

Mandler agreed that like Belgium, Israel has emerged as a trading, rather than manufacturing, center, and therefore has to deal with the reality of India’s dominance in the market.

Positive Outlook

Mandler retains a positive outlook for the diamond market, despite the caution he said was essential in order to avoid the speculative risk. Namdar added that the immediate outlook for the market, particularly in the Far East, was strong. “After Christmas, the Chinese New Year and Valentine’s Day, we have just come off a very concentrated season” he explained

 

The Marketplace

• Uptrend continues in polished prices and demand.

• Shortages remain, particularly in fine-quality diamonds.

• Good demand exists for commercial stones in G-H colors and VS-SI clarities.

• Expectation of further rough price inflation is fueling strong demand for polished, particularly VS stones.

• Most popular sizes are .3-carat to 1-carat stones.

• Demand has improved for large stones above 3 carats.

 

Article from the Rapaport Magazine - March 2011. To subscribe click here.

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