Rapaport Magazine


By Anastasia Serdyukova
Troubled Market Needs Correction

The stagnation in sales and the falling rupee continue to be the source of concern for manufacturers, dealers and jewelry makers. “The situation is very grave and if measures are not taken, it could become worse than in 2008,” said Maksim Shkadov, the director of Kristall Smolensk. He said that the falling polished prices created the situation where rough is now up to 15 percent more expensive than the polished.
   “There is an urgent need for market correction and it should happen one way or another,” Shkadov said, noting that the situation can be corrected if supply to the market is limited. “The problem is that neither ALROSA nor De Beers is taking up the role of market regulator,” he said. Shkadov believes it is possible that if measures are not taken, companies may be forced once again to halt supplies to the market as was done in 2009.
   The falling rupee rate and the collapse of a number of Indian companies cause much concern among the market participants. In Russia, the ruble is also falling, having lost 10 percent since the beginning of 2013. As a result, the prices for diamonds in rubles have risen. Yet the jewelers say that just raising prices is not the answer because the demand at retail is lower than it was in 2012. “Money is moving very slowly at the market,” said Anton Schepotiev from Almoss.

Urgent Measures Needed
   The sales stagnation in the jewelry market has aggravated many of the existing problems in the industry. Both jewelers and state officials overseeing the business say urgent measures are needed. “A number of Russian companies are moving their production outside the country, or transferring their money to other businesses,” said Flun Gumerov, the head of Almaz-Holding, one of Russia’s largest jewelry companies. He was speaking at the International Jewelry Economic Forum, organized by the Russian Jewelers Guild in Moscow in mid-September. The forum gathered company, trade and government leaders to discuss what can be done to keep the industry afloat.
   “Since 2000, the import of jewelry items has increased eight times, while the domestic production increased only four times, “ said Alexander Rybakov, vice president of the Chamber of Commerce and Industry. He voiced concern that even though Russia joined the World Trade Organization (WTO) a year ago, it is still at a disadvantage compared to foreign companies due to high domestic taxes and import duties on equipment and stones that manufacturers use.

Domestic Disadvantage
   “When jewelry companies import stones, they pay 15 percent import duty and 18 percent value-added tax, which makes domestically produced jewelry items more expensive than imported goods,” said Rybakov. Imported jewelry is levied with a 20 percent duty, which is to be decreased to 10 percent in a couple of years due to WTO regulations. “It’s essential that we pay less for imported stones because few of them are mined in Russia,” said Andrey Yalunin, the head of the Ural Guild of Jewelers. Jewelers are concerned that this encourages illegal imports, which are estimated to make up to 40 percent of jewelry sales, although the figure is difficult to confirm.
   The Russian jewelry market has been growing in recent years after a shortfall in 2009 and it has almost reached 2008 figures, when it was at its peak. However, according to the data from the Russian Statistics Bureau, jewelry makes up only eight-tenths of 1 percent of all retail sales, while alcohol makes up 7.4 percent and perfume, 1.5 percent. Precious stones and metals constitute 1.3 percent of Russia’s gross domestic product (GDP), but jewelry is only 8 percent of that segment, according to Alexander Markin, the head of the Assay Chamber.

Potential Still Exists
   “The Russian jewelry market has a big potential for growth,” said Garik Gevorkyan, the chairman of the Russian Jewelers Guild, although he added that the legislation needs to be changed to meet the realities. An expert committee has been set up for lawmakers and jewelers to work out more viable regulations. Meanwhile, some new legislation is creating more trouble than relief. According to a recent amendment to a money-laundering law, retailers are required to demand a valid ID for any purchase over $500. Jewelers say that compliance with this legislation may create problems during the Christmas sales season, when the stores are flooded with customers.
   Another piece of legislation that needs to be tackled urgently, according to many jewelry makers, obliges companies to send gold leftovers to special plants for refining. There are only a dozen plants that are allowed to do refining. “Their capacities are not large enough and sending leftover gold for refining means additional expenses for companies,” said Aleksey Bogdanov, co-owner of watchmaker Nika.

Article from the Rapaport Magazine - October 2013. To subscribe click here.

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