Rapaport Magazine

Price Concerns Create Stagnant Market

Russia Market Report

By Anastasia Serdyukova
 

There hasn’t been much movement in the market since the beginning of 2012. On the one hand, the calm was due to seasonal reasons: Most Russians enjoy ten days off for the New Year holiday, during which time little business is done, and companies were getting ready for the start of a new cycle after the holiday sales period. On the other hand, there’s continued uncertainty over where the market’s prices are headed and how the financial turmoil, especially in Europe, will unfold.

“We are waiting to see what decisions ALROSA makes and how the markets of China and India behave,” said Boris Dmitriev, the director of Yakutia-based manufacturer DDK. Many characterize the end of 2011 and the beginning of 2012 as stagnation. “People have the money, manufacturers have the goods, but no one is buying. Everyone is still uncertain about what to expect in this new year,” said Irakly Aneli, director general of Nevsky Diamond.

Shortages in Certain Rough

Manufacturers report there is an abundance of rough in the market, but they say the prices are too high. “The prices are high or just slightly lower than the peak summer prices, which doesn’t accurately reflect the mood in the polished market,” said Anton Schepotiev of Moscow-based diamond dealer and jewelry-maker Almoss. “Some companies are selling rough at dumping prices if they need to cover their expenses, but those are one-time deals,” said Aneli.

Although overall, rough supply is sufficient, market participants note shortages in certain qualities and sizes. “Manufacturers in Yakutia complain there’s not enough small rough,” said Isabella Soltys, whose Yakutia-based Sakha Taas sells diamonds and produces jewelry. Aleksandr Maksimov, director of Yakutian Diamond Company, said good stones of 2 carats to 5 carats are difficult to find. Aneli explained that shortages in quality goods have been a trend for awhile because sellers accumulated a lot of poor-quality rough in their inventory as they were trying to offer a better assortment in previous years.

Fluctuations in the exchange rate also are affecting prices. “The prices for rough are stable, but have a slight tendency to decrease if calculated in dollars,” said Schepotiev.

Polished Market Stable

The situation in the polished market was described as stable by many manufacturers and dealers because demand was stimulated by holiday sales and jewelers need to replenish their stocks. “Export sales fell 7 percent to 8 percent over 2011 due to the financial crisis and high rough prices,” said Valery Fedorov, director general of EPL Diamond. “The demand for diamonds on the domestic market increased 6 percent to 7 percent over 2011.”

Demand is especially great for small polished goods below .30 carats because that is the size most used in Russian jewelry. Those gems are usually imported, so Russian companies are watching intensely the market developments in China and India. “Everything below 1 carat is selling well, but the demand for stones between 1 carat and 2 carats is not great,” said Maksimov. Schepotiev noted that revenue from sales of polished gems is at the same level as in early 2011, adding “but we need to take into consideration that the price for polished increased a lot over the past year.”

Stones of VS1-and-better clarity are in greater demand because Russians are looking for good characteristics. Soltys said that sales of certified stones over the holidays were very good as they were given as New Year presents. Maksimov added that more people are buying gems as an investment because they are worried about the fluctuations of the stock market. The general expectation is that the prices for polished will go up over the next two months due to increased costs.

Modest Holiday Sales

There’s not much excitement over the year-end holiday sales in 2011. Descriptions vary from “slightly lower than 2010” to “the same level as 2010,” with a few reporting increases. “We had higher sales than 2010, thanks to the better work we did with assortments and brand recognition,” said Dmitry Kuntsev, director general at Smolenskie Brillianty, jewelry branch of manufacturer Kristall Smolensk. “Most sales were in the lower segment of $200 and less,” said Veronika Boyarskaya, head of the sales department of Moscow jewelry factory Elite, whose merchandise extends to $10,000 pieces. Schepotiev said that the sales in the middle and upper-middle price segments were not going very well. At the same time, companies selling items priced $8,000 and higher reported that demand for those pieces increased slightly.

Throughout the recent holiday, Russians remained true to their habit of buying one-stone classic pieces as New Year presents, demanding white color and good characteristics. Boyarskaya said customers are becoming more meticulous about colors, clarities and cuts and there are more instances of customers taking their purchases to independent jewelers to verify the quality of the stones or getting an independent appraisal before closing the deal.

Kuntsev noted that yellow, brown and black diamonds are accepted only as an element of design, but not as a center stone. Another factor Russians want in a holiday jewelry present is size. Those who can’t afford big diamonds go for large semiprecious stones, such as aquamarines or tourmalines, surrounded by small diamonds.

The Marketplace

  • Nine Armenian companies purchased $43 million in rough diamonds from Russia in 2011, a 70 percent increase from the $25 million purchased the previous year.

  • Demand is strong for diamonds of less than 1 carat and steady for 2 carats to 5 carats.

  • Prices for gems of less than .30 carats rose slightly due to the lack of supply.

  • H, VS1 and better see steady sales, while sales of stones with lower characteristics are down.

Article from the Rapaport Magazine - February 2012. To subscribe click here.

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