Rapaport Magazine


By Avi Krawitz
Mixed Conclusions

The mood in the Israel Diamond Exchange (IDE) improved toward the end of December because business during the Christmas selling season was better than had been projected just one month earlier. However, Israeli diamantaires, reflecting on overall trading in 2013, drew mixed conclusions about the market. While sales were about in line, or slightly improved, compared with 2012, profitability remains a challenge.
   As a result of their low profit margins, manufacturers and dealers in the bourse maintained relatively low expectations throughout 2013. They consistently reported that trading with the U.S. — Israel’s largest market — was steady, although not booming. Indeed, many traveled to the U.S. in December to make a final sales pitch during the holiday season. They returned to Israel satisfied with the level of overall demand, even if the market did not receive the significant boost that the holidays have traditionally provided in past years.
   “The U.S. market has been chugging along,” said Jeremy Medding, a partner at EMA Diamonds, which specializes in .10-carat to 3-carat stones in all colors and clarities. “Orders were there in the final quarter but I can’t say I feel any major pull or strength. So I’d say that the markets are performing just at an adequate level.”
   Most dealers who spoke with Rapaport Magazine noted that jewelry retailers are managing their inventory more carefully than they used to. Jewelers, it seems, have adopted a just-in-time strategy and have been content to delay their Christmas buying until later than usual.
   Moshe Barzilai, who deals in .90-carat to 5-carat stones, agreed that sales to the U.S. have been stable and noted strong demand for commercial diamonds. Dealers in the exchange reported good demand for SI1- to I2-clarity goods for the U.S. market, while niche suppliers of large stones and colored diamonds also had relatively strong Christmas orders.
   Barzilai said there has been strong interest in large diamonds above 7 carats, driven by both investment and jewelry demand. He downplayed the influence the recent strong sales of unique diamonds at the major auction houses have had on the trade. “The auctions affect the perception about diamonds and when the public sees these crazy prices, it is good for us,” he said. “But there’s no real connection to the mass market or prices among dealers.”

Shift to the Far East
   With the Christmas season over, dealers shifted their attention to the Far East in advance of the Chinese New Year, or so-called Spring Festival, that begins on January 31. Medding noted that Far East demand was selective throughout 2013 and that buyers were focused on specific items and were not very willing to compromise on prices. Trading activity is expected to continue to be driven by demand for .30-carat, VS-SI triple EX goods, which have been a mainstay item in 2013, particularly in the Chinese market.
   “Everyone was talking about VS and SI goods in 2013. But you have to understand that the Chinese customer doesn’t buy every VS stone and he doesn’t buy every SI stone,” Medding explained. “Buyers want the better VS goods and the better SIs, and so long as demand is as quiet as it has been, they’re getting them.” As a result, he added, there are shortages of nice goods in these categories in the market. Medding also stressed that sellers don’t have too much leverage when it comes to prices because they don’t want to compromise their relationships with their customers.
   Barzilai agreed there were shortages in the market, which he reasoned was due to reduced manufacturing — particularly during the November Diwali break in India — and to reported delays in releasing goods following certification at the laboratories.

Challenges Ahead
   Few expect a strong uptrend in polished prices in the first quarter of 2014, when more goods are expected to filter to the market. There remains some frustration at the apparent disconnect between the rough and polished markets, and the resulting low profit margins in manufacturing.
   “Our margins are very thin and you have to be very efficient to make a profit today. We’re seeing a lot of competition for rough at unjustified prices that people are paying because they have no choice,” Medding explained. “The midstream sector has been squeezed between the rough producers and our customers for too long and it’s become unsustainable. So the big challenge for the market is to find a way to achieve a balance, and run a profitable business.”

Strong Shekel
   With diamonds traded in U.S. dollars, local businesses noted the marginal effect from the stronger Israeli shekel on their businesses, since such expenses in the bourse as wages and rent are paid in the local currency. The shekel gained about 6 percent against the U.S. dollar in 2013 and was trading at around 3.52 shekels per dollar at press time.

Article from the Rapaport Magazine - January 2014. To subscribe click here.

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Tags: Avi Krawitz