RAPAPORT... “It’s difficult to speak about any positive trends, but more deals are being made compared to the beginning of the year, although at a low price level,” said Valery Morozov, the head of Ruis Diamonds, a Russian manufacturer owned by the Leviev group. Other manufacturers describe a similar picture — the sales of small gems have gone up slightly, from practically nil in January.
Svetlana Adamova from EPL Diamond said certified stones of 0.01 to 0.1 carats are in the greatest demand. The other popular size with individual buyers is 1 carat-plus with good characteristics. “People are showing more interest in certified stones of F and VVS2-and-better characteristics,” said Andrew Selin from Arkhangelsk-based manufacturer Zvyozdochka. However, most of the manufacturers are cautious in discussing positives as the sales are still scarce.
The inconsistency of rough prices is another challenge for manufacturers. “The real price is between the two extremes,” said Morozov. “On the one hand, some companies are forced to sell at knockdown prices but, on the other hand, big miners and sellers, like ALROSA and Gokhran, are keeping their prices high and thus they can’t sell anything.”
The few manufacturers who are continuing operations said they either buy rough abroad or draw from their precrisis stocks. Most express concern that ALROSA has stopped sales to the domestic market, which keeps prices high. The Association of Diamond Manufacturers of Russia has called the miner’s supply policies destructive.
Problems HighlightedThe slowdown of the market has worsened the problems Russian diamond manufacturers and jewelry makers were facing before the economic crisis. The majority of those problems rest in the specifics of Russian legislation. Manufacturers say the long period it takes to rebate the value-added tax (VAT) is having an even more adverse effect in the crisis conditions. On average, companies are waiting at least six months after they sell their product abroad to get their taxes refunded. “We haven’t yet received the tax refund for 2008’s sales,” said Yuri Mkhitaryan, the president of Ugas Diamond, manufacturer and jewelry maker.
Jewelry makers say because of the numerous legal requirements — be it Russian export regulations or the weeks of delays needed to get a countermark — it takes longer to get an item to a customer than in other countries. “The biggest problem is the absence of an expert body to help jewelers solve their difficulties at the federal level,” said Flun Gumerov, the president of Almaz-Holding.
Jewelers also say that the failure to create a strong perception of jewelry as a value during the boom times is taking its toll during the crisis. “It’s a shame people are investing in gold-backed accounts instead of gold jewelry items” said Valery Radashevich, the president of the Russian Jewelers Guild. According to information published on the website of Sberbank, Russia’s biggest bank, Russian investors put more money into gold accounts in 2008 alone than in the six previous years combined. The bank expects a threefold increase in 2009.
Overall jewelry sales have fallen 20 percent since March 2009, according to Radashevich. He said production of gold jewelry fell by half in the first quarter of 2009, while the production of silver jewelry increased 30 percent. Many companies said they are switching to silver instead of gold to help them retain sales volumes, although the revenues will be less.
Jewelry demand has been seen at both ends of the two extremes: very expensive or very cheap. Companies showing their products at New Russian Style — a major annual exhibition held every May in Moscow — say items priced lower than $150 were in great demand, especially among wholesalers from the regions. “The sales in the regions have fallen by half, while in Moscow and St. Petersburg, sales are nearly the same as at the beginning of the year,” said Sergey Dokuchaev, director general of Russkiye Samotsvety. At the same time, participants at the exhibition said items with price tags above $3,000 were going well with individual buyers.
Viktor Tulupov, the director of Jewelry House Tulupov, said the demand in the niche of exclusive jewelry was stable, with the greatest demand for diamonds over 1 carat and/or with unusual form. At the show, many companies decided to stick to safe bets, presenting their full assortment. Classical designs prevailed and there were very few items with color stones; designs either had diamonds or no stones at all.
JCK ShowRussia is not going to have a separate country exhibit space at the JCK Las Vegas show. “We think companies would lose money because of the economic crisis and the flu,” said Valery Budny, head of the Restek exhibition union, which has set up the Russian exhibit for the past five years.
When the JCK exhibitors’ listing page already was in print, several companies were still pondering whether or not they were going to Las Vegas. Almaz-Holding was the only one committed to attend. “The jewelry business is like riding a bicycle; you can’t stop pedaling,” explained Gumerov.
Marketplace• ALROSA, Russia’s largest diamond miner, expects its net profit for 2008 to total approximately $50 million, an unprecedented drop from the $500 million-plus reported in 2007.
• The miner has raised its production expectations for 2009 from $1.9 billion to $2.1 billion, based on 2009 first-quarter results.
• Demand in polished diamonds is strongest for 0.1 carat and 1 carat+.
• Jewelers expect continued stagnation over the summer, but hope demand will pick up in September.
• In anticipation of summer — a traditional time to get married in Russia — demand is strong for wedding rings costing less than $600.
Article from the Rapaport Magazine - June 2009. To subscribe click here.