Will Demand Pick Up?

Israel

By Avi Krawitz

The uncertainty that has been prevalent among traders in Ramat Gan for the past few months was still evident as the Israel Diamond Exchange (IDE) closed for its annual two-week summer break in August. Both suppliers and buyers were prepared to wait until after the break to reassess prices and market conditions, with the hope that trading will improve after the seasonal summer quiet.

   “People are waiting for the end of the holiday. Demand in August has been slow but you feel that there will be demand in September,” said David Kuchler, chief executive officer (CEO) of EZ Diamonds, a manufacturer of small, fine-make rounds from .01-carat to .75-carat sizes. “I don’t foresee an immediate rise in prices but I expect they will stabilize as demand improves when people start thinking about the holiday period.”
   Isaac Berman, owner of I. Berman Diamonds, agreed, and suggested that many in the trade are waiting for the Mumbai show, which took place in late August, and, more importantly, the results of the September Hong Kong show.
   “It has been quiet all over. Six months ago, the East was booming and the U.S. was quiet. Now, the East is down and the U.S. is stable,” Berman said. “I am sure that Hong Kong will be a good show and that it will give the market a strong push for the end-of-year high season.”

SIGNS OF STABILITY

Until then, however, Berman noted that manufacturers and dealers are working with a slightly lower profile as they wait to see how the market will react. Kuchler believes that signs of stability are starting to show, with rough prices beginning to steady and buyers once again inquiring about goods.
   Kuchler observed that prices for small, better-range diamonds have declined sharply since January, a reaction to the overproduction and over-buying of collection goods by watch companies in 2011. He added, however, that there has been some stability in the better-make smalls, clean to piqué goods, that are popular in the Chinese market.
   During periods of uncertainty when prices are high, Kuchler noted, buyers tend to downgrade the quality of goods they are looking for in order to maintain their price points and inventory capacity. Now that everyone has shifted to more affordable goods, there is a supply shortage in the lower categories. As a result, the gap between the high and midrange goods has shrunk to the point that people are moving to the higher range again because there is a shortage of other goods. Also, these goods are now more affordable and buyers can purchase at this level and still stay within their budgets, Kuchler explained.
   Dealers report that there is a scarcity of VS to SI goods in nice makes and also shortages in fancy shape goods, particularly princess cut stones, because manufacturers stopped cutting them when prices fell.

NONCERTIFIABLE PROFITS

The biggest challenge at the moment is to maintain profit margins, especially with rough prices being high relative to the resulting polished. In this environment, noncertified goods often offer greater price flexibility and profit opportunities than certified diamonds.
   “Today, it’s easier to do business without certificates because the certified goods have a fixed price whereas the pricing of noncertified goods is more flexible and potentially more profitable,” Berman explained. Kuchler agreed, adding that certified stones are undervalued right now, particularly in the smaller goods above .30 carats, and that noncertified stones are more attractive to manufacturers in these sizes.
   Kuchler explained that there is currently not sufficient demand for certified goods on the market to influence manufacturers to raise the number of stones they send for certification. “So buyers tend toward noncertified goods,” he said. “You can get better prices with uncertified goods than those with certs. The gap is enough that the cost of certifying the stone is not worth it.”
   Berman noted that buyers are more insistent on certificates when it comes to the better-quality goods.

BANK SUPPORT

For many in the industry, the key to improving market activity is stronger support from the banks. Berman stressed that the Israeli industry has an opportunity to gain significant market share in the current quiet market but such a surge will require greater bank credit.
He recalled that the Indian industry managed to achieve exponential growth after the market downturn of 2008 only with government support and easier bank credit. With the Indian government now cutting back, Berman said it was an opportune time for Israel’s banks to ease their credit requirements to enable the local industry to grow and increase market share.
“Anyone working in the diamond industry today must be optimistic about our potential for growth because there are too many negative things that can be overwhelming,” Berman said. “I believe we will get through this period and continue to operate on a high level because Israel has everything it needs to be a leading diamond market.”