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Israel's Diamond Industry Changing for Better

Jul 3, 2002 11:38 AM   By Martin Rapaport
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Martin Rapaport discusses the Israeli diamond industry with Udi Sheintal, the Diamond Controller of Israel.

Martin Rapaport: How is the Israeli diamond market?

Udi Sheintal: In the past few months we have seen a change for the better. The rough trade has increased with more imports and rough being exported by Israeli firms for polishing in foreign cutting centers. Since the traffic from buyers coming to Israel has slowed because of the security situation, Israeli diamond dealers are increasing exports and selling more directly overseas. Israeli companies have increased sales in the last months and they have more orders. They are preparing themselves for better times.

MR: From the Israeli perspective does it look like worldwide diamond demand is improving?

US: Yes, the belief among Israeli diamantaires is that there will be good times ahead in the U.S., which is the largest market for Israeli diamonds. Local diamantaires are gearing up for increasing demand by buying more rough and this is encouraging greater activity in the local industry.

MR: Is bank debt in Israel as high as it used to be?

US: No, the bank debt is very reasonable at about $1.4 billion just after the sight. Based on our level of exports this is a good figure and I cannot complain.

MR: Is the bank debt coming down?

US: Yes, it has come down. Last year bank debt was about $1.5 billion and now it’s coming down to about $1.3 billion.

MR: Does Israel have too much polished diamond inventory?

US: My guess is that inventory levels are reasonable, but we do not have any specific data.

MR: Is there enough rough in the market?

US: We feel a shortage of rough diamonds. De Beers is taking good care of its sightholders with really good deals from the point of view of prices and selections. Dealers believe that demand for polished diamonds will be sufficient to support trade liquidity and better demand for rough. Supplies of outside non-Diamond Trading Company (DTC) rough is tough. The prices are high and there is a shortage. When diamantaires see the prices for outside or second hand rough, some will buy, but they don’t think they will make a profit. In the current market the advantage is for the sightholders compared to those dealing on the open market.

MR: Will the shortages of rough squeeze out diamond manufacturers in Israel?

US: Because of the worldwide industry slow-down last year, diamond manufacturing activity in Israel diminished. At the beginning of last year we had a manufacturing base of 4,500 polishers. We are now talking about 3,500 polishers. This is an estimate based on there being about 800 diamond manufacturers now holding permits.

MR: Do you see any trends in Israeli diamond manufacturing? Are manufacturers moving to larger sizes or more expensive goods?

US: They are concentrating on the more expensive goods and the larger sizes. Many Israeli manufacturers gave up manufacturing very small sizes in Israel, although they still produce large quantities of smaller sizes overseas. Those that deal in small sizes have manufacturing and polishing facilities in China, India and other places. The Israeli Diamond Institute (IDI) has projects that support new technology geared to lowering polishing costs in Israel. We are working to bring the manufacturing of smaller diamonds back to Israel.

MR: Is India a strategic threat to Israeli diamond manufacture?

US: So far I do not think so because India concentrates on small stones and we deal in medium to larger sizes. While we know India is moving towards larger stones, I do not think they pose a threat to our industry at the current time.

MR: Where do rough diamonds come to Israel from? How much rough comes from the De Beers – DTC?

US: From January through April of this year about $270 million of DTC rough diamonds came directly to Israeli sightholders. Rough also comes to Israel from Angola, the Democratic Republic of Congo, Sierra Leone and South Africa. Angola is a major player and we are happy with their import numbers. A small portion of Angolan rough is being polished here, but most of it goes out to Russia and other places for manufacturing.

MR: Is Israel becoming more of a rough trade center?

US: Yes, and we are waiting to see what the trade pattern of Russian rough will be. We know that 50 percent of Russian rough diamonds will go to De Beers according to the new agreement between De Beers and ALROSA, Russia’s diamond mining company. We are waiting to see what happens with the rest of Russia’s rough and whether it will be marketed freely. We’re hopeful that Israel will get a share of that rough. ALROSA has opened an office here and we are working very closely with them.

MR: Overall how much of the rough coming into Israel is directly from the DTC?

US: About 30 percent comes to Israel directly from the DTC and around 50 percent comes from Belgium. The balance is from other sources.

MR: Why doesn’t De Beers increase its direct allocations to the Israelis? Why does the DTC rough have to go through Belgium?

US: We have raised that question many times with De Beers during our consultations with them. De Beers has its own calculations and strategic positioning. It has promised us that percentage-wise, allocations to Israel will not be reduced.

MR: Perhaps the DTC needs to allocate rough in broader assortments than the Israelis wish to buy?

US: Maybe, but the Israeli market can clearly absorb more rough and broader selections of rough. That is why the Israeli government has adopted a policy to do everything it can to actively promote new sources of rough and to encourage this rough to come directly to Israel. That is why we work so closely on the government level with Russia. Diamonds are one of the topics on the agenda of the joint-economic committee between Israel and Russia. One result of our relationship is that ALROSA has opened an office in Israel.

MR: Is the problem of conflict diamonds a concern for Israel given that rough is coming from Angola and the Congo?

US: Conflict diamonds are a concern for us and everyone in the diamond industry. We make certain that diamonds from those two countries come to us via legitimate sources. The only importer from Angola is Lev Leviev and he is a part-owner of the Angola Selling Corporation (ASCORP) – the official government licensed exporter of rough from Angola. So we don’t have a problem there.

In the Congo there is no requirement for a certificate of origin, so we ask the importer for receipts to prove the diamonds were bought directly from the government and only then do we release the diamonds from customs and allow their import into Israel.

MR: How important are diamonds to the Israeli economy?

US: Diamonds are important for a number of reasons. First, diamonds are still the largest single exported item from Israel. Second, they contribute to the free flow of foreign currency in and out of the country. Third, they are a source of employment to many people and their families. Finally, a number of additional service industries are supported by the diamond industry.

MR: Since all rough diamonds are imported what is the added value of Israel’s diamond trade?

US: The added value is relatively small and probably between 7 and 12 percent. The smaller the diamond, the higher the added value component.

MR: What is the government doing to assist or promote the diamond industry?

US: We offer regular government programs. The investment center can assist in establishing a new polishing facility. There is also an Export Promotions Fund that offers diamantaires government assistance for their promotional activities abroad. Another program works to co-ordinate joint ventures between jewelry manufacturers and diamantaires to increase exports of diamond jewelry from Israel.

MR: How big is the jewelry industry?

US: The jewelry industry is modest. It used to be larger when it was more involved in the mass production of machine-made gold chains, but some of this activity has moved to the Far East because of lower labor costs.

MR: Do you think Israeli nonsightholders have a chance to succeed in the diamond business?

US: That is a tough question, because it depends on the outside supply of rough diamonds and the price cutters can get for their polished diamonds. There are times when nonsightholders are profitable and there are times when they aren’t. Now is not a good time for them because outside rough is expensive.

MR: Is Israel developing interesting new technologies that will help the diamond industry?

US: Yes, but they are secret. The Israeli Diamond Institute (IDI) does not want to make the same mistake it did in the past when certain machines and technologies were developed and within a few months they were exported to the diamond industry worldwide. IDI wants the new technology we develop to be used by the Israeli diamond industry and provide Israeli manufacturers with a competitive technological edge.

MR: Is there anything you’d like to add about the Israeli diamond market?

US: I think that in spite of what people read in the papers about the security situation they should know that diamond buyers are still coming to Israel from all over the world. Our diamond exchange complex is very secure. While buyers may not be coming at the same rate that they have in the past, those that come feel very safe and enjoy excellent opportunities to do good business.
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Tags: Alrosa, Angola, Belgium, China, Conflict Diamonds, De Beers, DTC, Economy, Government, IDI, India, Israel, Jewelry, Leviev, Manufacturing, Polishing, Production, Russia, Sightholders, South Africa
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