Rapaport Magazine

Israel Market Report

Some Movement, Little Profit

By Avi Krawitz
Israeli diamantaires returned from the Jewish holiday break in October reasonably satisfied that demand has improved but
deeply concerned about their continuing low profit margins, especially among the local diamond manufacturers. “The positive we see is that
the market is moving and is not standing still,” said Kobi Itzchaki, managing director of Dalumi Group. “But our conflict is in prices. There are a lot of polished goods being sold below production costs, which makes it better to be a trader than a manufacturer at the moment. This situation cannot be sustained and is bound to change; otherwise, the entire industry will be at risk.” 

Moti Ganz, outgoing president of the International Diamond Manufacturers Association (IDMA), who in October was reelected chairman of the Israel Diamond Institute Group of Companies (IDI), urged the industry to keep the playing field level. “We cannot continue to buy rough at a loss,” he stressed. “The producers need to give the manufacturers stronger backing, by consistently providing rough supplies that will in turn enable the manufacturers to commit to their clients with reliable, continuous supplies of polished.”

Itzchaki agreed, but explained that even though rough prices from the major producers are high, manufacturers are compelled to buy these goods in order to keep their businesses running and to fill orders from customers who are waiting for their polished goods.

Not Selling Cheap
Within this environment, polished dealers and manufacturers are trying to maintain steady polished price levels. Ady Legziel, owner of Ady Legziel Export (1996) Ltd., which specializes in 1-carat to 3-carat certified round diamonds, noted that, on the whole, polished suppliers are not under pressure to sell and are prepared to wait until they can get their price.

“It’s not like in 2008 when people needed the cash and were prepared
to sell off their goods,” he said. “Sellers are refusing to sell cheap.
You can get your price but the market is operating in a way that you cannot sell quickly.”

Legziel added that there are a lot of goods in the market but that doesn’t mean that buyers can get the prices they want. Particularly with regard to fancy shape goods, which are in relatively steady demand, he noted that buyers either meet the supplier on price or miss out on the stone. The demand-supply imbalance in fancies also means that the diamonds that are readily available at cheaper prices are flawed.

With businesses across the pipeline working with lower inventories, producers have diminished their rough supply and manufacturers
have reduced their factory output. Itzchaki expects that there may be some pending shortages of the more popular goods that have been selling at a steady pace. As a manufacturer, he sees this as a positive because it would help support higher prices. It would also help narrow the price gap that exists between the commercial and better-quality diamonds, which,
in turn, would encourage people to start buying the better-quality goods again, he explained.

Relative Quiet
Given the diminished demand in 2012, Legziel observed that trading in the Israel Diamond Exchange (IDE) has been relatively quiet. “There is demand and people are looking for goods, but everyone has decreased their turnover in 2012,” he reported.

Itzchaki acknowledged that the mood in the bourse is slightly gloomy at the moment, given the global economic uncertainty and lack of manufacturing profitability. But he expressed confidence that the market will improve. “It’s difficult to predict but we have to be optimistic in this business,” Itzchaki said. “We must realize that there is no permanently bad market, just as there is no permanently good one.”

Positioning Israel
Legziel acknowledged that the market has slowed as Chinese buyers have grown cautious in the uncertain 2012 economy, but he expects the Far East to be the key toward reversing the downtrend. “The Chinese need a realistic indication that the market is going up before they return in a serious way and stimulate industry growth,” Legziel said.

Ganz said that his main task during his new term as IDI chairman will be to create a comprehensive ten-year strategic plan to position the Israeli diamond industry as a global leader in rough and polished diamonds.

Itzchaki stressed there is no reason Israel shouldn’t achieve that goal, given that it has the best regulation standards and facilities and has a lot to offer in terms of diamond knowledge and trading ethics. “It’s also a very ambitious market and the chances of succeeding here in the diamond business are better than anywhere else,” he said.

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

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