Israel's diamond exports fell sharply in February amid falling demand from its biggest customer, the United States. The Ministry of Industry, Trade and Labor said Monday that $611 million worth of polished diamonds were exported in February, 7.8 percent less than the $663m. sold abroad a year earlier. For the first two months of the year, net exports were down nearly 7% from the same period in 2004. "Demand for commercial-quality polished diamonds in the US has fallen because of a decline in disposable income in the US," explained Martin Rapaport, publisher of the Rapaport Diamond Report, which reports on diamond prices internationally. The US is the main destination for Israeli polished diamonds - receiving 57% of the country's exports - followed by Hong Kong (22%), Belgium (7%), Switzerland (3%), and the UK (2%), the ministry noted. High oil prices, expensive mortgage payments boosted by rising interest rates, and high credit levels have hurt middle-class spending on mainstream luxury goods, including inexpensive to medium-quality diamonds, Rapaport said. Depreciation of the euro against the dollar also raised diamond prices in dollars. In contrast, the expanding number of millionaires around the world, particularly in China, India and the Middle East, is strengthening demand for larger, more expensive diamonds, Rapaport noted. Despite declining polished diamond sales abroad, imports of raw diamonds to Israeli industry jumped 9% in February to $433m. from $397m., according to ministry statistics. Imports of polished diamonds to Israel totalled $315m. in February, down 3.1% from the $325m. the same month last year. Rapaport explained that efforts by DeBeers and others to restrict availability of rough diamonds, compounded by Belgian competition in trading, had created a frenzy of rough diamond purchasing by Israeli and world manufacturers. DeBeers raised prices by 2% in mid-February. Nonetheless, since the beginning of the year, imports of raw diamonds to Israel have fallen 5.7%, the ministry said. "It's still too early to determine results for 2006 as a whole," said the ministry's diamond commissioner Shmuel Mordechai. Noting that the overall drop could be a healthy sign of Israel "keeping pace" with the market, Rapaport, nevertheless, predicted that 2006 would be a difficult year for inexpensive jewelry. Over the next few years, however, he said the market would improve due to the growing wealth in Asia. "Israel is going to have to develop more foreign markets and be less dependent on the US," he said.