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Israel
By Avi Krawitz
Most Israeli diamond dealers and manufacturers were happy to see
the end of 2012, which presented a variety of challenges for the local industry. While the overall mood as the year began was positive, it was being measured against prior conditions, which could best be described as lackluster. While no one expects a significant rise in demand in 2013,
many are projecting a stable year ahead. “I don’t think the market situation will change in the first quarter but
it will improve from the second quarter and beyond,” said Benny Meirov, owner and president of MID House of Diamonds, a polished diamond distributor. “I feel that the world is starting to handle the economic crisis better, particularly in the U.S. and Europe, and people are recognizing
the returns that diamonds can provide.” Israel’s polished diamond exports fell 23 percent to $5.56 billion in
2012, with the steepest declines occurring in the first half. Confidence
in the trade was impacted by prolonged investigations in the bourse by
the tax authorities that began in January 2012.
Meirov, who was recently presented with Israel’s Outstanding Exporter Award for 2011, acknowledged that Christmas sales were “nothing to write home about.” He added, however, that the U.S. has returned to being a
very good market for Israel, whereas Hong Kong and China were “shaky” in 2012. Ori Fluk, chief executive officer (CEO) of Yoshfe Diamonds International (YDI), a manufacturer of small and medium-size, fine-make round diamonds, agreed, adding that the market saw improved sales in December and January. “It looks more optimistic but we recognize that it’s not a boom period,” he said. “People are still concerned about prices and are not sure whether prices will soften further. So the market is better, but there is hesitation.” Fluk added that buyers are looking for goods but are tough with prices and very specific in their demands. He sees similar trends in all markets, whether among U.S. buyers looking to restock after the holiday season or Far East buyers preparing for the Chinese New Year.
Despite the relative market stability, most diamantaires who spoke
with Rapaport Magazine agreed that garnering reasonable profit margins remains their biggest challenge, particularly among manufacturers. One manufacturer, who requested to remain anonymous, stressed that De Beers rough is still expensive, despite its price cuts in the second half of 2012.
He explained that while manufacturers have reduced their rough purchasing budgets, sightholders are forced to allocate a greater portion of their budgets to their De Beers purchases — even if the actual sight allocation declined. “Sightholders have no choice, and have to take their goods,” he said. “But most would rather buy more outside the sight because those outside goods give better value.” While some expect De Beers and ALROSA to raise prices in 2013’s first quarter, Meirov forecasted a more stable environment. “The price of rough won’t go up,” he predicted. “It’s already high and people in Israel — and all over — have lost money on rough in the past year. The only people
who made money were the polished dealers.” Given the low profit margins, many expressed concern that Israeli banks are scrutinizing the industry more closely. Meirov noted that bank credit to the industry has nearly halved since before the 2008 downturn and that the banks are watching everyone very carefully now. Fluk added that while the Israeli banks are the healthiest in the industry, there is a current sense that they’re being too careful.
To grow the market, Israeli cutters believe they need to encourage
more manufacturing to take place in the country. Roy Fuchs, a specialist manufacturer of fancy color stones, explained that while many of the larger companies have their factories in Southern Africa, China or India, Israel needs to preserve its cutting industry. “Israel is an important trading center so I believe there will always be manufacturing here, particularly among the small to medium-size companies,” he said. “But we need to grow our workforce so that we can encourage dealers to have more manufacturing done here.” Fuchs, who is head of the industry committee at the Israel Diamond Manufacturers Association (IsDMA), noted that Israel has an aging workforce of diamond cutters and expressed concern that the younger generation is entering the industry as dealers and in management positions, rather than as cutters. He reported that IsDMA is working on an initiative to revive the manufacturing sector and train workers. “We need to rebuild our infrastructure and train people.” Because labor costs in India and China have begun to rise, Fuchs sees an opportunity for Israel to regain some of its lost market share. “Israelis have the ability to be flexible and to identify new opportunities in rough because they can adjust their cutting to market conditions,” he explained. Article from the Rapaport Magazine - February 2013. To subscribe click here.
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