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Middlemen to Be Squeezed Out of Diamond Industry

Q&A with Avraham (Bumi) Traub, Honorary President of the Israel Diamond Manufacturers Association and Founder of A.B.T. Diamonds Ltd

Nov 9, 2014 4:00 AM   By Ronen Shnidman
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RAPAPORT... The Israel Diamond Manufacturers Association (IsDMA) is a long-standing industry association whose members account for more than 90 percent of the diamonds manufactured in Israel. Bumi Traub is a veteran diamond polisher who over the course of decades in the Israeli diamond industry served twice as IsDMA’s president before being named honorary president for life in 2013. He recently discussed with Rapaport News several trends affecting both the Israeli and global industry and where he sees the industry headed moving forward.

Rapaport News: What is IsDMA and what distinguishes it from the other diamond industry organizations in Israel?

ABT: IsDMA is an organization that was established in 1940, before the Israel Diamond Exchange even existed. The bulk of IsDMA members are diamond polishing factory owners and the primary purpose of the organization is to represent their interests. Although the membership has become more diverse in recent years, they are IsDMA’s core membership.

The organization’s responsibilities include dealing with the banks, representing the industry in talks with the government about taxation and economic incentives and promoting the adoption of new technologies.

When I first became president of IsDMA in 1993 it had 103 members. Today there are about 185 members in the organization.

Rapaport News: What was your first job in the diamond industry?

ABT: I began as a student because you cannot become a diamond polisher without the proper training. Afterward, I became a polisher, then a manufacturing subcontractor and then a primary manufacturer. I have been on every rung of the ladder in the diamond polishing industry.

Rapaport News: How long does it take to become a professional polisher and is the industry attracting a new generation of people in Israel?

ABT: There is no exact time period. I began in a class of 10 and three of those 10 became professional polishers. Not everyone can be a doctor and not everyone can be a polisher. As a polisher, I continued to learn and gain knowledge over 18 years.

There are young people here who are using very innovative technology, but you do not hear about them. They travel around the world, learning to buy, manufacture and make a profit and they have quietly overtaken the people who like to talk a lot and complain.

But if you ask me, the industry has not done enough to attract a new generation. If I thought we were doing enough, it would mean that there is a problem with my way of thinking. One must never become complacent.

There are families here that have a great next generation to carry on the business. These people are even better than we were. But there are also families that will leave the business. What I want is to find some fresh blood from the street. I want people who are hungry, like I was when I came here.

Rapaport News: You immigrated to Israel from the Soviet Union in 1973 before the Russian market opened. How did you break into the industry here?

ABT: No one laid out a red carpet for me when I arrived in the 1970s. The industry in Israel was growing at the time and needed more workers. One factory recruited close to 30 immigrants from a labor exchange, including me. Half of my day was actually spent working as a translator. The [factory managers] would explain things to me in Yiddish and I would explain what they said to my co-workers in Russian.

Rapaport News: De Beers has predicted that the global rough supply will begin a long-term decline by 2020. How will this affect the manufacturing sector?

ABT: There has always been rough and there will always be rough. I have been in Israel 41 years and people would always say there was never any rough and yet there was always plenty of rough.

Rough has always been in strong hands. The rough goes to whoever has the capability to pay and who can hustle. People should understand that this is a good thing. There is no such thing as no rough diamonds available.

No one has 20/20 foresight. De Beers said that the rough supply will start declining by 2020, but in the meantime others things will happen. Look at the secondary market, which has been growing. Diamonds are being recycled and many of the smaller diamonds that are being recycled need to be re-cut.

There is no need to rush to conclusions. People like to speak about how things will be in a few years, but a little work puts the house in order. As long as there are beautiful women, there will be work in the diamond industry.

Rapaport News: Okay, but if we are talking specifically about Israel, why manufacture here?

ABT: This is an issue I have dealt with for a long time. There was a time in the 1990s that labor was cheap in India and the Far East and we could not compete.

Today, wages in these countries have improved and they do not have such a clear advantage in terms of labor costs. What separates the competition today is finance, and finance in Israel is weak. The amount of credit provided to diamantaires by the banks stands between $1.4 billion and $1.5 billion. It is an embarrassment. Even the smaller business tycoons in Israel owe several times this amount.

Right now it is as if the banks and the rest of the world took a right turn and we have continued heading straight as if nothing happened. I have been pushing the local industry to move toward transparency and implementing international accounting standards, but it is difficult for people to change their worldview. I hope that over time this effort will succeed.

Rapaport News: What is the current state of relations between the industry and the banks in Israel?

ABT: The ties with the banks are excellent. Basically, Bank Leumi panicked and quickly cut the credit it provides to the industry, but the other banks were happy to take over the business.

Every bank here has turned a profit from the diamond industry, despite the companies that have disappeared over the past 20 years. The industry is based on reputation and not contracts, and that is our mazal.

Rapaport News: Has the long-term contract system used by major mining companies made it difficult for manufacturers to procure rough?

ABT: No, the rough in the market is held by strong hands. If you look a bit at the statistics, you will see that rough prices are still within a comfortable range and we are close to 2008 prices.

However, there is a new problem. Technology now enables the digger to know exactly what the rough diamond will yield and he prices the stone accordingly. As a result, diamonds today are in the process of becoming a commodity. But there are still quite a number of hands the diamond passes through on the way to the consumer.

I believe that in the not-too-distant future manufacturers will market directly to the consumer. Perhaps a few large dealers will remain in the middle to provide credit and finance. Because if you look at polished diamonds, and if the banks would give the appropriate amount of credit, the dealers in the middle would disappear.

Rapaport News: Do you agree with the notion that more rough will be sold via auctions in the long term as contract sales tend to distort the market?

ABT: I think the market is transitioning. The same major suppliers that sell via long-term contracts also hold auctions or tenders. Based on the tender results they raise prices paid under the long-term contracts, but it takes them longer to lower prices.

You could justify this by saying that this system helps maintain the value of diamonds. But in recent years, the drawbacks for manufacturers have undoubtedly outweighed the benefits.

Once, if you had a steady supplier, it was almost a foregone conclusion that you would make a profit. But when I was starting out there was a major event or shift in the industry every two years or so. Today, things evolve more quickly. You wake up every morning and the world is a different place. This means that stability in supply and rough prices is no longer much of a benefit. In the future people will use long-term contracts less and less.

Rapaport News: As the rough supply declines, could synthetic diamonds bring an opportunity to sustain the industry in Israel, despite the strong opposition here to synthetic diamonds?

ABT: The two issues are not related. I'm in favor of a free market, with just one condition. If you are going to sell diamonds that are not completely natural, be honest and disclose that they are synthetic diamonds or treated diamonds.
If people want to make a living selling synthetics, let them.

Rapaport News: What is your forecast for the industry in Israel for the next five to 10 years?

ABT: Five to 10 years is a very long time because of the volatility in the market. Once, you might have been able to predict the future because work plans were made at least five years in advance. Today that does not happen.

There will be a medium-size industry here. The next trend in the business will be more focused on the secondary market in diamonds and re-cutting and polishing the many recycled diamonds that need to be fixed.

I told my own son 20 years ago that he would be able to support a family working in this business. Beyond that, I do not know.

Rapaport News: What would you say to someone who wants to enter the industry now?

ABT: To persevere, persevere and then persevere. Never stop. Everything has its good periods and its bad periods, but whoever is always running along to the next thing never gets there in the end.

The future of the industry depends on a few young people who are very professional and want to have an impact. They will continue in this business and profit from it.

I am happy that today there are factories where engineers plan the cutting of each stone because the more you work with highly educated people, the greater the likelihood that you will go far. 
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Tags: ABT Diamonds, Bumi Traub, IDE, IsDMA, Rapaport News, Ronen Shnidmajn, Ronen Shnidman, Russia, Soviet Union
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