Rapaport Magazine

Israel

By Avi Krawitz
Business Returns to Realistic Levels

   Activity in the Israel Diamond Exchange (IDE) quieted in April as the Passover festival and the country’s Independence Day celebrations somewhat disrupted business. For many, the break signaled a return to a more realistic, lower level of trading than seen in March, when business was given a significant boost by the Hong Kong show and by the U.S./International Diamond Week activities that took place in the bourse following the show.
“The Hong Kong show and the U.S./International Diamond Week were very positive for the trade and created a positive atmosphere in the bourse before Passover,” said Shmuel Schnitzer, honorary president of IDE and chairman and chief executive officer (CEO) of S. Schnitzer Diamonds. “But it has returned to normal now and the market norm at the moment is a bit down.”

Rough & Polished Concerns
   Schnitzer noted that conditions have grown particularly challenging for diamond manufacturers in the past month because rough prices have increased, while the polished market has remained stagnant. He added that whereas one could buy profitable rough a few months ago on the secondary market, manufacturing margins have since been reduced again.
   Shachar Dvash, owner of Onyx Diamond Israel, a specialty manufacturer of square cut diamonds, stressed greater caution because diamonds have become a speculative commodity since the 2008 downturn, which has been particularly destructive for manufacturers.
   “Rough and polished prices change very sharply and very quickly from one day to the next,” Dvash explained. “This is a dangerous situation for us and there’s no room for manufacturers to profit in such a market. Diamonds have become speculative and we have to find a way to work in this new reality.”
   While rough prices increased in April, polished trading improved but remained cautious. Israel’s diamond trade continued to slide in the first quarter of 2013, compared to the same period a year earlier. Polished exports to the U.S. fell 17 percent to $490.5 million and to Belgium, they dropped 26 percent to $135.4 million. These declines were partially offset by strong growth in exports to the U.K., Switzerland and India.
   Schnitzer observed that while demand from the U.S. is okay, and it remains Israel’s primary market, there is not overwhelming confidence there. Similarly, he added that expectations for China are still positive even if growth has slowed in the past year.
   “We saw at the Hong Kong show that the Chinese are back in the market but not at especially strong prices,” Schnitzer explained. “The big Hong Kong–based retailers are looking for goods, which is encouraging for us.” With stable demand from Europe and Japan showing signs of improvement, he predicted that growth would continue to be driven by China, despite its relative recent weakness.

Bank Lending Off
   Dvash stressed that while polished trading has improved since August and prices have stabilized, there is more reason for concern about trends in the rough market. Israel’s rough imports slumped 10 percent to $890.5 million in the first quarter while rough exports grew 3 percent to $826.3 million.
   While the data points to an overall decline in rough supply, Schnitzer observed that speculation was driving up prices and cautioned dealers against speculative buying and international banks from financing such activity.
   In contrast, he added that the local banks are more conservative in their lending to the industry than banks in some other centers. Bank credit to the Israeli diamond industry has almost halved since the 2008 downturn to about $1.5 billion currently, while, as Schnitzer notes, activity has increased.
   In addition, sources indicate that Bank Leumi, a major lender to the local industry, is examining its operations and reevaluating its position in the diamond sector. The bank declined to comment to Rapaport Magazine.
   “How does an industry grow in these conditions? It makes it very difficult to compete against other centers that have more credit at their disposal,” Schnitzer reasoned. Dvash agreed and suggested that Israel needs to attract more banks to the sector to increase competition and lending to the industry.

WDC & CIBJO Meetings
   Israel is hosting the annual meetings of the World Diamond Council (WDC) and CIBJO, the World Jewellery Confederation, on a back-to-back schedule in Tel Aviv in early May. “Israel is known primarily as one of the world’s largest diamond and gemstone centers, but it also is an important jewelry manufacturer in its own right, and a hothouse for the development of much of the most sophisticated technology used in our industry today,” said Gaetano Cavalieri, CIBJO president. “The congress will provide our members with a fascinating insight into this exciting country.”

Article from the Rapaport Magazine - May 2013. To subscribe click here.

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