The Israeli diamond industry, like its counterparts around the world is likely to continue facing more of the same challenges that it had to deal with last year as it enters 2015. Many members of the Israel Diamond Exchange (IDE) experienced a difficult 2014 and a change of date and wishes for a Happy New Year are unlikely to be enough to change the fundamental problems they are facing. However, there are also positives and opportunities for companies nimble enough to change direction and change the emphasis of their operations.
IDE President Shmuel Schnitzer and members of the exchange's presidency have made worthy efforts in the field of financing. But it is not yet clear whether the IDE will succeed in bringing in new banks to provide substantial levels of funding. Bank Leumi, one of Israel's two largest banks, withdrew from diamond industry financing last year. Among the country's other major bank institutions, Mizrahi-Tefahot in September signed an agreement regarding financing for the diamond trade in Ramat Gan.
In a meeting held between the management of Bank Mizrahi-Tefahot led by the bank's CEO Eldad Fresher and CTO Ophir Morad and leaders of the Israeli diamond industry led by Schnitzer, President of the Israel Diamond Manufacturers Association, Kobi Korn and Israel Diamond Institute Chairman Moti Ganz, Fresher announced an expansion of credit to the Israeli diamond industry.
However, the Israeli diamond trade's outstanding loans are estimated by industry experts at around $1.5 billion, a figure that Schnitzer says has not changed a great deal in recent years. "We at the IDE are making a lot of efforts to bring about extra financing," Schnitzer commented. "We are discussing joint ventures with banks, financial institutions and insurance companies. We hope to bring about a situation where the banks can increase funding and give more credit. Some banks have given the maximum credit that they are allowed to give to the diamond sector under the law so there is a possibility of giving credit with other ventures so they do not need to touch their own capital.
"We are continuously thinking about how we can bring more capital to our members. There has been a positive reaction from Israeli banks. They do not regard the provision of credit to Israel diamond companies as risky and are willing to enlarge it."
The banks want to see a much wider and deeper degree of transparency. They want to see the traditional family-owned diamond businesses, which retain their operations close to their chests, being considerably more open and also becoming more corporate. In other words, act like a regular company if you want to receive financing. Companies with millions of dollars worth of stock in their safes or on consignment are unlikely to find willing financiers.
The lack of funding is causing something of a seizure in trading, with firms unable to buy new rough or polished. On the one hand, rough goods are simply not worth acquiring because they are too expensive to manufacture profitably. Meanwhile, polished is too expensive to buy, say diamantaires, because it cannot be profitably sold further down the pipeline to jewelers and retailers.
The head of one small Israeli polished diamond trading company said: "As of the end of December, I closed down the business. I have retained my office in the exchange, but there is simply no way of trading profitably. There are many polished diamonds for sale, but I am unable to buy them since there is nobody to sell them to at the prices being demanded and the prices being offered.
"This is the toughest trading environment that I have seen in my 15 years in the business. I am keeping my eye on the trading conditions and when I see an improvement I will come back in, but as of now I have to find another way of earning some money," he added.
As for other challenges facing the Ramat Gan community in 2015, IDE members will be keeping an eye on the issue of undisclosed synthetic diamonds being mixed in with mined natural stones. This may have been blown out of proportion last year since. For now, the amount of synthetic goods in the pipeline is very small compared to naturally mined stones.
Will 2015 witness the consolidation of the business? Many diamantaires express surprise that the industry has not seen a shake-up since the financial meltdown of late 2008.
Many manufacturers have been operating with a minimal level of profitability for the past several years. Preferring to remain in the business even if they have to inject some of their own capital into operations, common sense dictates that there will surely be a point where they cannot afford to do so.
And middlemen, who have also been declining in numbers over the past five to six years, are also likely to decline further. Razor-thin margins are forcing industry players to deal directly with each other. There is no room for sentimentality and long-term relationships are likely to fall victim to a company's need to survive.
Schnitzer and his team will also be working this year to create an overall income tax agreement with the tax authorities. The previous agreement covered the industry's operations for the last three decades and more, but the damage caused by the illegal so-called 'pirate bank' led the tax authorities to look more deeply into the IDE's workings.
Needless to say, the diamond producers will remain pivotal to the profitability and survivability of the rest of the downstream players. The idea that any of the producers – from De Beers to Alrosa and Rio Tinto to Dominion all the way down to the junior players – are likely to reduce prices is somewhat delusional. Some items at some sights may see smaller rises, but that maybe about as much as can be expected.
Israeli diamantaires may have to reprioritize their marketing and sales positions. While the United States appears to be solid – if not spectacular – as its economic recovery continues, China appears to be taking a lengthy breather. And India is starting to slowly rebound, with Prime Minister Narendra Modi, who was elected in May, creating a positive mood in the country.
Since the financial crisis of 2008, many Israeli diamond firms shifted their attention to the Far East and away from the recession-hit United States. Will they, this year, be heading West sensing better opportunities there than in China and elsewhere in the Orient?
There are other positives for the industry, too. The World Diamond Mark Foundation is gradually spreading awareness of its operations and the importance of generic diamond promotion. Diamonds are not just another commodity, they are a brand and need to be marketed and sold as such in order to be able to persuade consumers that they are worthy of a higher price, says the WDM and that is a sentiment that should draw widespread support from the industry.
Helped by the attendance of visiting Russian President Vladimir Putin and Prime Minister Modi at the WDM's inaugural World Diamond Conference in New Delhi in early December, the new body was able to gain a great deal of much-needed media coverage. The WDM will be holding marketing events this year in Turkey and Dubai and elsewhere – and it is to be hoped that its efforts are adopted and applauded more widely in the diamond business worldwide.
By our Israel correspondent
