Here it Comes, The Israel Rough Diamond Buying Group
February 17, 11
In a bid to take its destiny in its own hands, key figures from the Israeli diamond industry have been quietly meeting over the past couple of months, discussing the formation of a rough diamond buying group. The idea is still in its initial stages and far from being final, but now that two of its initiators are willing to mention it in public, we can provide a few more details about it.
The Israeli market made it through the recent economic crisis, but not unscathed. Many traders found that they lost market share to Belgian and Indian companies, that the banks are less willing to provide them credit, and that rough is tougher to buy. Not just because less rough was mined, but also because large companies made a point of buying more of it, leaving less for medium and smaller size companies.
"Rough diamond buying is a market for the large companies," a person involved in the new initiative told us. "For medium and small companies to compete, they need to form a buying force." An earlier example already exists, Diamond India Ltd (DIL). DIL was formed to bring more rough to
The idea to form a buying group has been floating around for a couple of years, discussed in a number of forums. Its biggest hurdle seemed fundamental - the ability to work together. Every other aspect seemed to be "just technical details" that can be ironed out in due course. Something however has changed.
The presidents of the Israel Diamond Exchange and the Israel Diamond Manufacturers Association, Avi Paz and Moti Ganz, started to discuss the idea with a small group of people and found that the psychological barrier may not be as high anymore. "The big question has to do with the common decision to join a rough corporation. The responses we are getting so far are 'great idea, waiting for it to happen to join'," an insider told us. A rough trader that was involved in past attempts to form such a group said the industry is finally ready.
The big question in my mind is the business model. How will the goods be divided - by closed tender, buy me/ buy you, or simple run of mine split by share of investment? Who will be allowed to become a member and who will be able to buy from the group – only Israelis or non-Israelis too? Is this a for-profit enterprise or will the benefits come from securing first-hand rough without having to pay inflationary secondary market premiums.
As it stands, that is yet to be decided. "The details of the plan will soon be presented to the diamond public, and they can use the proposed model or develop a different one," Ganz said this week in an interview. We understand that at least one model, maybe as many as three, will be presented to IDE members at a presentation sometime in March.
"The final model will be determined by the new entity," we were told. According to Paz, "the corporation will allow Israeli diamond traders to purchase rough and participate in tenders as a group with the sound credit backing."
God is in the detail, and before anything materializes all the above questions, and many more, will need to be answered. Some models have a much better chance of succeeding than others and the choice should take into account legal and financial aspects as well as find the best middle ground that will help mid- and small-size companies take part and benefit.
This is a great and important initiative and I'm happy to see it make its first steps. Paz, Ganz and their teams should be congratulated for taking the hard steps of attempting to bring a fragmented industry together for the benefit of all. It will go a long way for improving competitiveness and we can only hope that a large number of traders embrace this project and join it.The potential is vast. Think Rio Tinto Select Diamantaire or even DTC Sight.