RAPAPORT...
The fast-growing rough prices are raising much concern among
market participants in Russia. The increase
of around 15 percent in July by ALROSA, Russia’s largest diamond miner
and the supplier to most of the country’s manufacturers, left many wondering if some sort of ceiling had
been reached. There also were questions of whether the market could absorb the
increase in polished prices that inevitably will follow the rough hike.
Smaller manufacturers say they are cautiously raising
polished prices. “Manufacturers are working at the edge of their profit
margin,” said Irakly Anely, director general of Nevsky Diamond. He also said
many are trying to “buy and sell fast.”
Kristall
Kristall Smolensk sold 113,679 carats of diamonds in the
first six months of 2011, 28 percent more than in the same period in 2010. The
company, which produces more than half of all Russian polished, received $350
million in net revenue, calculated according to July’s ruble-dollar exchange
rate. This is 89 percent higher than in 2010. “The results are very good,”
Nikolay Afanasiev, Kristall’s head of sales, said
in a July interview with Rapaport. The
manufacturer exported 97.9 percent of its product in the first six months of
this year, a dramatic change from 2010, when the company sold 34.2 percent of
its diamonds domestically.
Kristall’s breakdown of
domestic and international sales most likely is also typical for many other
Russian manufacturers, who do not reveal their exact figures. They are selling
the bulk of their gems abroad because the domestic market is too small to
consume what they produce. In addition, domestic demand is for sizes up to .30
carats, which many manufacturers say are unprofitable to produce inside the
country. “The sharp increase of polished prices boosted the export of
diamonds,” said Anton Schepotiev, commercial director of Almoss, Moscow-based
diamond dealer and jewelry maker. “Many Russian companies not only sold their
new production, but also cleared their stock.”
Price Pressures
As for polished sales inside the country, they have slowed
down due to the seasonal dynamics and the increase in prices. “Russian buyers
are not ready to pay the current market price for diamonds,” said Dmitry
Vinogradskiy, marketing director of Shreya Core, manufacturer and jewelry
maker. The demand is traditionally strong for 10-pointer gems and smaller,
although they are becoming increasingly expensive. “The tendency of shifting
toward lower characteristics is still strong,” said Schepotiev. Companies are
adjusting to new market conditions by rearranging their assortment and
targeting niche clients. “The increase of rough prices was expected and the
market will eventually swallow it,” said Maksim Maltisov, marketing specialist
of Zvyozdochka, Murmansk-based manufacturer and jewelry maker.
Manufacturers of jewelry say the higher gold prices are
having a more significant effect on their production than the price of
diamonds. “The hike in gold prices is a restraining factor for jewelers,” said
Vladimir Stankevich, marketing director of Titan, a new Moscow-based factory.
However, the companies are cautious about raising the price for their products.
“We are increasing the prices only for new items,” said Ilya Adamsky,
commercial director of Moscow Jewellery Factory, one of the country’s largest
producers, noting the company can afford it because it has big turnover and
little inventory. Jewelry makers are betting on attractive design and providing
good quality-price ratio. “Our new collection will be affordable, beautiful and
meet European quality standards,” said Vinogradskiy. “Russian consumers are
becoming increasingly demanding about the quality of design and the mounting.”
Investing in Diamonds
The financial market roller coaster in August, following the
one earlier in 2011, contributed to the increased interest in jewelry,
especially expensive items, as a place to invest money, according to some
jewelers. “Our luxury segment, which includes pieces starting from $4,000
wholesale, saw a 28 percent increase in sales in the first six months of 2011,”
said Fyodor Poludenny, the head of the wholesale and luxury department of
Estet, one of Russia’s leading jewelry makers. “The demand is strong for
certified diamonds,” said Vinogradskiy. Russians were also keen on investing in
gold after the markets’ slump in early August. “Investments into unallocated
metal accounts increased by 10 percent in the first week of the month,” said
Viktoria Kostenko, the head of the precious metals department of the Soyuz
Bank.
Summer sales were
characterized as good by many
jewelers. The best-selling items were
wedding bands and engagement rings. But the real test of the market is
expected to be a series of September shows,
including the Hong Kong show and
Junwex Moscow, the biggest Russian jewelry show. In conjunction with
Junwex, show organizers are holding Junwex Watch for the first time. “The Russian watch market has reached
the level where its participants are capable of showing their products at a
separate show,” said Aleksey Bogdanov, co-founder of Nika, Moscow-based watch
manufacturer. “It will attract more attention by customers and wholesalers to Russian watchmakers.”
The Marketplace
- The Russian Assay Chamber stamped more than 17 million
gold items weighing 38.41 tons, including 980,000 imported pieces, in the first
six months of 2011.
- Russia produced 18.76 million silver items and imported
5.62 million, with both groups totaling 100.18 tons, in the first six months of
2011.
Article from the Rapaport Magazine - September 2011. To subscribe click here.