Israeli Diamond Leaders Predict Price Increases

Basel, Switzerland-The continued reduction of rough diamond allocations by De Beers' Central Selling Organisation will soon result in "steep" price increases for medium- and better-quality polished goods, Israeli industry leaders recently predicted during a press conference here.

"This will happen much faster than most people in the jewelry industry expect," said Israel Diamond Exchange President Itzhak Forem.

Forem's assertion was especially significant because Israel supplies more than half of the world's annual supply of polished gem diamonds.

The CSO reduced its rough distribution to sightholders by more than 50% during the past six months to help firm up diamond prices, Forem explained. This reduction is beginning to be felt in the pipeline and will impact the world diamond market during the next six months and into 1999.

"Cutting supply is the right thing to do," Forem said. "In the near future we will see an increase in the prices of rough and polished diamonds. It's just a matter of time."

The CSO's practice of reducing rough allocations has traditionally been viewed as a defense mechanism to prevent polished prices from falling, not necessarily to cause an increase in prices. The CSO has been allocating reduced sights since mid-1997.

Although he did not pinpoint an exact figure, Forem said price increases are inevitable because worldwide demand has become more focused on a specific range of goods. A press release that Forem did not read from but was distributed at the event set the increase possibly as high as double digits for larger sizes and better colored goods. The CSO reductions, combined with concentrated buyer demand, will create shortages in certain diamond categories.

The result is a highly competitive buyer's market as retailers

attempt to stock their displays from steadily dwindling supply, Forem said.

The current situation is a far cry from the past few years, when overproduction of polished diamonds created a surplus that undermined prices and shrunk margins. Today, many Israeli manufacturers are selling diamonds from stock to fulfill orders.

"The overproduction, the long periods of credit, the returns to cutting centers and the high price of rough in relation to the resulting polished contributed to the erosion of profitability for diamantaires," Forem said.

"The polished business today is still a buyer's market, because it takes time for the supply and demand to regain its equilibrium," he said. "But today, I can tell you with certainty that this situation is about to change."

Besides the pricing issue, Israeli trade officials reported that their sector's net exports of polished diamonds exceeded the $4.1 billion mark in 1997.

The United States remains Israel's largest destination for polished goods, accounting for more than 50% of Israel's total 1997 exports. Exports to the United States were followed by Hong Kong (18%), Japan (10%) and Belgium (8%).

Notable was a significant decline in Israel's exports to Japan, where the trade continues to suffer under the difficult national economy. These exports fell from $771 million in 1996 to $574 million in 1997.