Gloom, But Not Doom

Israel’s polished diamond exports fell 19 percent year on year to $3.26 billion in the first half of 2012, government data showed. Rough imports declined by 19 percent to $1.99 billion. Dealers estimated that interdealer trading in the bourse fell by even more.

“You do feel that dealers are nervous,” said Chaski Brachfeld, a director at Belisdiam, a specialty manufacturer of large diamonds. “We don’t see a fundamental problem in the market itself, but dealer trading has slowed.”

Abraham Fluk, chairman of Yoshfe Diamonds International (YDI), a manufacturer of small and medium-size, fine-make round diamonds, agreed, noting that the middleman dealer — the engine of the local trade — has been cut out in the weak market conditions.

SMALLS SHORTAGE

Fluk, whose company supplies many of the high-end luxury brands, stressed that the prolonged economic crisis in Europe has started to have a deeper impact on the diamond market. He noted that buying by the Swiss watch industry and the French luxury brands has slowed in 2012 and that these two sectors have started to feel the effect of the economic crisis after maintaining strong growth in the past two years.

“Both these segments are suffering because there is a slowdown in the Far East, especially in China, and to a lesser extent in Russia, and these two countries have been the biggest customers of luxury products,” Fluk said. “During 2011, which was a boom year for the Swiss and French luxury brands, the brands bought large quantities of small, top-quality diamonds to avoid shortages in supply and now their buying has slowed.”

INDIAN MARKET SENTIMENT

In addition, the sharp depreciation of the rupee has impacted Indian consumer sentiment and diamond demand there has diminished. As a result, Fluk explained, end-users are consuming existing inventories and dealers are using goods that are already in the pipeline rather than filling inventory. In addition, manufacturers are sending fewer goods to the factories for processing. “I expect there will be a shortage of small, fine-make goods in the market because jewelry and diamond watches are still selling in the world,” he stressed. “The pipeline is being streamlined. I feel that the turning point will come soon, especially for the high-quality, small-stone market, and demand will surge.”

As a result, Fluk expects that the second half of the year will be stronger than the first half. Similarly, Michael Aghbashoff, president of Denir Diamonds and Jewels, a diamond and jewelry manufacturer of all shapes and sizes, noted that July and August are generally quieter months and that the market should improve beginning in September.

Brachfeld stressed that much depends on the Indian diamond market, which, given its position as the largest center, dictates what happens globally. Many are therefore eyeing the India International Jewellery Show (IIJS), scheduled to open August 23 in Mumbai, as an indicator of market conditions.

STILL OPTIMISTIC

For now, Israeli dealers and manufacturers seem satisfied that the U.S. is providing some stability to the market even as many of their U.S. wholesale customers were on vacation through July. “It seems that jewelry always sells in the U.S.,” Aghbashoff said. “But diamonds are a different market, with ups and downs. Right now, suppliers have to adjust prices if they want to sell.”

Aghbashoff added that he has been careful to keep lower inventory since the 2008 downturn to remain liquid in case prices drop. He also cautioned that dealers need to be more careful when giving credit in the current weak market. However, Aghbashoff stressed that trading is by no means comparable to the standstill of 2008. “The market is quiet, but people are buying at the new, lower prices,” he said.

Brachfeld noted that there has been a presence of serious U.S. buyers looking for goods in Ramat Gan during July, while, in general, foreign buyers are looking to take advantage of the weak market. Similarly, Fluk added that the U.S. is currently the only “normal” market and further noted that the market is approaching its bottom, if indeed that low point has not already passed.

“Right now, there’s a slowdown and the leading companies, particularly the mining companies, need to take the right steps for the good of the industry,” Fluk said. “We’ve seen ups and downs before and we realize that the diamond business is a good one to be in. But if you’re not an optimist, you can’t stay in the diamond business.”

The Marketplace

• Trading is quiet, with steady demand for 1-carat+, VS-SI, clean-cut goods and good demand for .30-carat to .70-carat, VS-SI stones.
  
  
• There is good demand and short supply of triple EX makes.
  
  
• Suppliers are slowly starting to sell at the new, lower prices.
  
  
• There are looming shortages of high-quality small stones.
  
  
• Rough trading is quiet, with softer prices on the secondary market. But manufacturing profits are tight because De Beers and ALROSA supplies remain expensive.

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