While trading may have quieted slightly during the summer months, Israeli manufacturers and dealers remain confident that the uptrend seen in the first half of 2011 will continue through the rest of the year.
“Diamond prices are still low and have a long way to rise,” said Rony Eitany, president of Regent Diamonds, which manufactures 1 to 10 carats-plus diamonds in all shapes, D-L, VS-plus. “Despite the increases in the tens of percentages that we have seen in the past year, we need to remember that these numbers today really are a correction to the declines we experienced during the crisis. Back in 2008, prices dropped because of panic, not because they were too high, and so I believe that in the long run, diamond prices will increase considerably.”
Eitany reasoned that more people can afford to buy diamonds today than ever before, given the higher standard of living and the growing number of newly wealthy consumers in emerging economies. These trends are buoying overall demand and justifying higher prices. “If you consider the price of a 3-carat, F, SI1 stone at $50,000, a 5-carat, J, SI1 diamond at $70,000 and a 7-carat, gorgeous pear shape in E, SI1, priced at $250,000, you don’t have to be a billionaire to buy a diamond at these prices,” he said.
The current lull in trading is not considered a reflection of market conditions but rather the result of U.S. wholesalers taking summer vacations and Far East buyers having filled their inventories. Trading should pick up again toward the end of August following the Mumbai show.
For now, the industry appears content at having completed a strong first half of 2011. Israel’s polished exports rose 34 percent to $4.03 billion during the six months that ended June 30, 2011, with gross exports to the U.S. up 28 percent and gross polished exports to Hong Kong rising by 52 percent. Rough imports grew 37 percent to $2.47 billion.
According to Moti Ganz, chairman of the Israel Diamond Institute Group of Companies (IDI), local industry continues to display strength and vibrancy. He said he is confident the positive trend will continue through to the end of the year.
Fancy Trends
Gil Melamed, managing director of Vulcan & Co., a manufacturer of fancy shape, better-quality diamonds, expects a strong end-of-year season but stressed that much depends on price movements. “I feel that prices can only increase, especially in the fancy shapes,” he said. “Fancies are underpriced and there is a significant difference between their prices and those for round diamonds.”
As a result of these differences, Melamed noted a trend whereby diamond manufacturers are cutting oval-shaped diamonds into rounds because they can get a better price for the round. He explained that this is contributing to a shortage of fancy shapes in the market, along with the fact that dealers appear to be holding back stock and that there is a shortage of rough suitable for cutting into fancies.
Just as with rounds, demand for fancy shapes is being driven by growth in the Far East, but Melamed said that, in this case, China is not the main stimulus. “The demand for fancies in the Far East is coming from Hong Kong and the surrounding areas, not China,” he explained. “The Chinese are slowly opening to fancy shapes but it is an educational process because these stones generally represent a second or third diamond purchase for the Chinese consumer.”
Speculation Warning
Melamed agreed with Eitany that there is plenty of reason to be optimistic for further growth in the market, but cautioned that certain vulnerabilities remain. Among these are the lingering economic risk, particularly in light of the European debt crisis, and the fear that speculative trends are developing, with dealers holding onto rough.
Yuval Ben Yona, managing director of Ben Yona Diamonds, which manufactures diamonds of 1-carat to 10-carat sizes, expressed concern that rough dealers are creating artificial price points, causing prices to rise to levels that do not reflect the general demand for diamonds. “I don’t ignore that there are millions of new customers in the Far East,” Ben Yona said. “But people are starting to see the diamond trade as a stock market rather than as a trading commodity, which is a dangerous trend.”
Eitany warned manufacturers and dealers against hoarding stock if they want to ensure that the market uptrend is consistent and continues. “We need to buy and sell and keep the trade turning,” he said. “The moment that you get market price, or even slightly below with a profit, you need to sell, then buy again and sell again. As long as we do not speculate, there is no reason that prices will not continue to rise.”
The Marketplace
• With the approach of the August vacation period, polished trading is slightly down but stable.
• Demand is good for round, .30-carat to .50-carat, G-H, VS2-SI stones.
• Demand is strong and shortages are reported for SI1 goods.
• Demand is good for pear shapes in 1 carat to 3 carats and there are shortages in the high-quality goods.
• High rough prices continue to concern manufacturers.
Article from the Rapaport Magazine - August 2011. To subscribe click here.