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Russia
By Anastasia Serdyukova
The best description of the current situation at the Russian market is “unpredictable and difficult” due to the national currency, the ruble, losing over 25 percent of its value against the U.S. dollar since October 1 amd 42 percent since the beginning of 2014. The impact on the industry is heightened by the fact that the dollar is the benchmark currency in the sale of gold and precious stones. “Our costs are directly related to the exchange rate with the dollar,” said Ilya Adamsky, commerce director of one of the country’s largest jewelry makers, Moscow Jewelry Factory. “A one-time jump would have been absorbed by the market, but the rate changed three times in a month and that creates certain nervousness.” Fluctuations in the exchange rate add to other problems already facing the industry, including the overall stagnation at the diamond market, the fall in polished prices and difficulties with financing. “We have seen demand fall considerably compared to 2013, even though now is our main sales season,” said Kalpesh Shah from Shreya Core, a manufacturer and jewelry maker that has a parent company in Dubai.
Manufacturers are mostly concerned about the shortage of financing, which became even more acute this fall. Shah explained that his company has to pay upfront for rough, but its clients want to buy on credit. “Many companies have large stocks and when they need cash flow and can’t find enough financing from banks, they will sell at discount,” said Rajesh Gandhi, director of Choron Diamond, noting such scenarios are becoming more frequent and will grow in number because rough prices are too high for manufacturers under the current conditions. Prices for the rough of Russia’s largest manufacturer ALROSA increased by 8 percent to 9 percent in the first nine months of 2014. But the miner’s report also said that prices are not expected to rise further until 2015. The increasing demand in the U.S. and emerging markets will have a positive effect on the industry, according to the report. Manufacturers in Russia are also looking at the state of the U.S. market as it will have considerable impact on the industry in general.
Jewelry makers and diamond dealers are also concerned that people will be less inclined to buy jewelry for New Year’s presents, giving preference to more practical things. “People might want to buy a new iPhone or a vacuum cleaner,” said Shah. Adamsky said that the demand is falling for all types of jewelry, from mass market to high end. He added that the company needs to increase marketing efforts to promote sales, noting that “Whatever the crisis, people will continue to have weddings and anniversaries.” Alex Popov, chairman of World Diamond Mark Foundation, said that the crisis has revealed the need for a united effort on diamond marketing and on promoting diamonds generally. Anna Ostakhova, director general of the St. Petersburg–based Yakutbrilliant, said that targeting assortments that are not related to holidays can be a good strategy in times of crisis. Her firm is making engagement and wedding rings by placing Russian diamonds in mounts made by Guerci & Pallavidini, an Italian company that is more than 50 years old. “Regional markets in Russia are not yet saturated with products that come with a special design, window display and a history behind the company,” she said. According to Ostakhova, the best-selling category is up to .20 carats. “The retailers start with small, but then they switch to the category of .20 carats to .50 carats,” she said.
The Russian Ministry of Finance has introduced amendments to the law on precious stones and metals that would oblige jewelry manufacturers to mark synthetic diamonds and other synthetic precious stones when they sell them. The Russian Assay Chamber, along with the country’s consumer rights watchdog agency, will control the implementation of the law. Existing Russian legislation didn’t include the notion of synthetic stones. When the law is approved by the Russian parliament, other related laws could also be changed. The amendments were worked out in cooperation with ALROSA. The miner has long voiced concern over the need to introduce the changes. Companies that make synthetic diamonds have also welcomed the introduction of the amendments. “Chinese companies are already producing a large number of yellow synthetic diamonds and in three years to four years, they will be able to develop mass production of white synthetic diamonds,” said Aleksander Kolyadin, director general of Inreal, a St. Petersburg–based firm that specializes in a wide range of synthetic diamonds, but also makes jewelry-quality diamonds. He added that the share of jewelry synthetics in world diamond sales is currently minute, but will occupy a bigger niche as production in China expands.Article from the Rapaport Magazine - December 2014. To subscribe click here.
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