Let us begin the review of the world and Russia’s jewelry market with sizing up of year 2012 and forecasts for 2013. What does the research show? What do the analysts say? What are the reports of the industry’s leading companies? What is happening in other countries? What is the situation in different segments like? Read about it in our article.
Gold and silver: appetites are growing
Let's start with gold. The past 2012 year is regular, the twelfth in succession, when the prices for this metal continued to rise. According to most analysts’ opinion, this trend will continue in 2013.
Traditionally at the beginning of the year, the London Bullion Market Association (LBMA) publishes the price forecast for gold, silver, platinum and palladium from the leading analysts of the precious metals sector. Analysts predict the average annual price, maximum and minimum. According to their forecast, the average annual gold price in 2013 will grow by 5% compared with 2012. During 2012 the price of gold fluctuated wide-ranging, with achieved only twice insignificant maximum levels, at the end of February and the beginning of October, around 1760–1780 dollars per ounce. Average price of gold last year amounted to 1669 dollars per ounce. In 2013 the forecast for the average price is 1753 dollars/ounce, with the maximum of 1914 dollars/ounce and the minimum of 1529 dollars/ounce. Thus, the growth of the average annual price can be 5%.
“Gold Producer's Newsletter” of PRIME Agency has also analyzed the Russian and foreign expert judgments and published its forecast, according to which the price of gold in 2013 can test the bar of 2000 dollars per ounce, however, it is expected neither to exceed nor stay on this level. The surveyed by the “Newsletter” analysts say about it.
“I expect the continued growth of gold, says Dmitry Mikhailov, the portfolio manager of the "Renaissance Asset Management”. In 2012, the prices increased by 8 % (at the beginning of December); I expect similar growth in 2013(about 10%). 2000 dollars per ounce means 18-percent increase from current levels. Gold would hardly have time to rise to 2,000 in 2013. Of course, it is possible that this level will be "tested". However, I doubt that the probability of this event is more than 50%. "(1923.7 dollars per ounce) the price for a long time is consolidated in the range of 1580-1800 dollars per ounce, and still lacks the potential to go in any direction. Fundamental market data indicate the decrease in demand for gold due to a drop in consumers’ income as a result of the crisis. Probably, with the beginning of growth of the world economy, which is expected in 2013, we will see certain recovery of consumption; all the more the forecasts still point to its potential growth. The mark of 2000 dollars per ounce can be achieved, if the prices get over strong resistance and overcome active sales on the level of 1750-1800 dollars per ounce”.
“The climate in the gold market in the medium-term perspective is slightly negative, says Oxana LUKITCHEVA, the analyst of Bank “Discovery”. After reaching the maximum Despite the assumptions of many experts that next year the price for gold will jump over 2000 dollars per ounce barrier, the forecasts of most foreign banks are different. According to the forecasts of J.P. Morgan (the USA), in the middle of 2013, the price of gold can take the bar of 2000 dollars per ounce. However, the National Australia Bank has published the analytical report, according to which the forecast is $1670 per troy ounce. Price reduction can begin when the U.S. economic recession ends and there will be less demand for the dollar. Reuters’ analysts are also at one in thinking that gold will only increase this year. The experts of the UBS Bank (Switzerland) lowered their forecast for an ounce of the precious metal to 1600 dollars, although initially in their report they published the amount of $1800. The analysts of the German Deutsche Bank are also sure in the “bullish” trend’s prosperity at the gold market. Their forecast is 1700 dollars per ounce. They believe, while there is recession in the international financial system, the reduction of prices for gold is out of the question.
One more aspect should be taken into account. The demand for gold from Asian countries annually grows, and 2013 according to the forecasts, won’t be an exception. China is ahead of India in purchase amount of this metal. The debt crisis in the Euro zone will also positively cause a rise in price. Solutions on the rates of interest of FRS, ECB and the Bank of China have great influence on the price increase. To stimulate the economy of the countries central European banks will start granting credits. The money quantity increase will hardly help the economy. This situation will increase the demand for gold, so figures 1900-2000 dollars per ounce in 2013 seem quite real.
Figures 1900-2000 dollars per ounce in 2013 seem quite real
Let's pass over to silver. Over the past four years it has increased in price more than three times, gold only twice. Jewelers’ as well as investors’ appetites for silver are growing. The price of the second gold will go on rising too. At the beginning of the year the London Bullion Market Association (LBMA) published the forecast of prices for silver from the leading analysts of the precious metals sector. According to their forecasts, silver will be up 6.6%. So, in 2012 the average price of silver was 31.15 dollars per ounce (the forecast was 33.98 dollars per ounce). Thus, with the growth of 6.6% expected average price will be 33.23 dollars per ounce.
Many analysts believe that silver can grow much more essentially. So, Thomson Reuters GFMS research company, specializing on the analysis of the market of precious metals, expects that in 2013 the price of silver will rise from the current levels to 45 dollars per ounce. The company's analysts explain such a forecast by stimulating monetary policy of central banks, possible inflations and persistently low interest rates. The similar forecast is given by the Commerzbank, which explains the expected growth by the increase of industrial demand for silver. And analysts polled by the Reuters Agency, predict the increase in silver prices up to 50 dollars per ounce.
Silver trend remained one of the leitmotifs of 2012
On the whole silver trend remained one of the leitmotifs of 2012. Items made of this metal are still in great demand, and its sales are growing. International economic commentators of the jewelry industry state that the sales of silver jewelry significantly increased during the festive seasons of 2012.
“Silver occupies a very large share of the market, says Michael Di RIENZO, Head of the Institute of Silver. It is obvious that customers like silver; they are attracted by the elegant works of the best jewelry designers”.
Amanda GITSTSI, Director for External Relations of the Jewelers of America organization notes, “Many jewelers use silver and the range of silver jewelry is constantly expanding. People have got accustomed to the fact that silver is becoming part of elegant jewelry collections. Intricate details of silver comply the idea of graceful jewelry on the whole: fine patterns and very feminine design, floral motifs, as well as geometric shapes, cuff links with square details and details in the form of a labyrinth. All of this is elaborated in silver, and nothing else. Another fashion trend is the use of diamonds, pearls and precious stones in the jewelry design”.
Rough diamonds and diamonds: demand is outgrowing supply
Year 2012 was characterized by high volatility in prices for diamonds. At that, due to the reduction of volumes of extraction there revealed a tendency of dominance of the demand for rough diamonds over the offer. Another market trend was moderate growth of demand for diamond jewelry at the traditional markets of the USA and Japan, and active growth of diamonds consumption at the new markets of China and India. According to the Bloomberg Agency, in 2012, the first time during four years, the decrease of prices for diamonds was observed. WWW International Diamond Consultants’ data show that prices for rough diamonds fell by 16%.
“ALROSA has ensured a stable level of diamond mining and carried out annual tasks at 102.4%. The company showed profit in the amount of 36 billion rubles, with the increase by 25% compared to 2011, said Ilya RYASHCHIN, First Vice President of Alrosa, at the meeting, where the preliminary results of the financing and operating activities of the company for 2012 and plans for 2013 were considered. In 2013 ALROSA intends to keep lead at the world market. The volume of stripping works, diamond mining will substantially increase, labor productivity and wages will also go up”. The meeting took place at the end of December 2012 with the participation of the President of the Republic of Sakha (Yakutia) Egor BORISOV.
Another diamond mining giant, the De Beers Company, has reported reducing its operational indicators: its operating profit decreased by 49% and is 506 million dollars, while the total sales volume fell by 16%, to 6.1 billion dollars. Rough diamond sales during the year 2012 decreased by 15%, falling to $ 5.5 billion. The decline in sales of rough diamonds, according to De Beers, was mainly the result of lower demand, changes in sightholders’ product requirements, as well as the lowering of availability of some kinds of products. The same is with De Beers’ sales at auctions; they are down by 12% to356 million dollars compared with the previous year, when they were 405 million dollars.
"Although the prices for rough diamonds in the first half of 2012, as a whole, remained stable, the combination of weak diamond prices, large stock, accumulated in the cutting centers, and liquidity decrease among diamond manufacturers, caused the diamond price correction in the third quarter", said Philip Mellier, the De Beers Executive Director.
However, the company expects moderate growth in demand for diamond jewelry in 2013. This demand will be supported mainly due to a more positive picture at the markets in China and India compared to 2012. "Some positive movement is possible in the USA, while trading conditions at other developed markets are likely to be difficult", they note in De Beers.
Prices for diamonds were also in the red zone this year. Price index by RapNet Diamond Index shows that prices for diamonds weighing 1 carat fell by more than 12.6%, and the fall in prices for diamonds weighing 3 carats was more than 11%. The price index for medium-sized diamonds was up 2.3% this year. After rather cheerless for the diamond market year 2012, the Polished Prices Agency expects slight (by 4.3%) price increase during 2013. The growth of consumer demand at the Asian markets can positively influence the increase of prices. The growing middle class in China and India will provide good prospects for the global diamond market. By 2020, these two countries will consume more diamonds than the current leader, the United States. To blame is imitation of western, particularly American tradition. This is stated in the report "The global diamond industry in 2012", published by the leading international consulting firm Bain & Company (the report is developed in partnership with Antwerp World Diamond Centre). And the global demand for diamonds will grow faster than offer; that means a favorable price forecast and good prospects for the industry as a whole, the report says.
Luxury-industry: conflicting data
Traditionally at the beginning of the year, all the world's companies reported on the results of the past year. Including the players of the luxury segment. The data, as shown next, is quite contradictory. So, the largest world manufacturer of watches Swatch Group AG in 2012 increased its revenue by 14% and on top of all of that bought the American Harry Winston brand of luxury watches and jewelry. At that the company highly appreciates the prospects of the market. “The signals from markets all over the world demonstrate preservation of good growth potential for both the industry and the Swatch, is said in the company’s report. Against this background, we consider real the long-term growth of the Swiss watchmaking industry by 5-10% per year.
Another luxury-industry giant Swiss Richemont SA increased its revenue in the third fiscal quarter by 9.3%. During the same period, Tiffany & Co. reported the increase of proceeds from sales only by 3.7%. And even the festive period did not become outstanding for the well-known retailer. The company reported 4-percent rise of net sales worldwide. Due to the uncertainty of general economic conditions Tiffany expects the growth of net profit in the amount of 6-9% in 2013.
Evidently, the forecasts of the well-known analytical company Bain&Co are beginning to come true: in 2013, the growth of sales at the luxury world market will slow down to 5% (against 13% in 2011).The blame falls upon the debt crisis in Europe, the overall uncertainty of the economic situation in the world, and even hope for the rapidly growing Chinese market is melting before our eyes. Rearrangements in the government of The Heavenly Empire, unprecedented anti-corruption campaign, the ban on advertising luxury and propaganda of the cult of modesty make the Chinese less demonstrate their well-being. As a result the growth in consumption of luxury goods in China would reduce from fantastic 30% in 2011 to more than modest 8% in the coming year, is noted in Bain&Co’s study.
And yet, despite this news, all the hopes of the producers are connected with this market. According to the data of the very same Bain&Co, every fourth buyer of luxury goods in the world comes from China. And another IBISWorld research agency summed up the results of studying the consumer demand at the jewelry market in China in 2012: for five years in succession it increases at the average 27% annually, and the last year was a record year for China on the number of purchased jewelry made of platinum and jade. At present, China is the leader in the demand for platinum, takes the second place (after India) in the amount of the purchased gold, and the demand for diamonds in the country is inferior only to the figures registered in the United States. These figures undoubtedly testify the general growth of living standards and incomes in China as well as the increase of the "middle" segment of the population.
Russia and the WTO: the first results and forecasts
What about Russia? In general it can be noted that in 2012 there was no significant increase; but nobody predicted it either. Sometimes there were failures, but also expected and predicted.
According to the Assay Chamber of Russia, during 12 months of 2012, 38.47 million pieces of gold jewelry with the total weight of 85.94 tons were branded and assayed. For comparison: for the entire 2011, jewelers provided for assaying 33.77 million pieces of gold jewelry with the total weight of 77 tons. Thus, in 2012, the growth was insignificant, by 13.9% in pieces and 11.6% by weight in regard to 2011. As for the import, in 2012, the share of imported gold jewelry amounted: in pieces – 5% (1.93 million pieces), by weight – 5.8% (5.01 tons). While in 2011 the import was: in pieces – 6.1% (2.06 million pieces) and by weight – 7.4% (5.7 tons).
As for silver jewelry, according to the Assay Chamber of Russia, during 2012, they branded and assayed 50.88 million pieces with the total weight 199.23 tons. For comparison: for the entire 2011, jewelers provided for assaying 49.91 million pieces of silver jewelry with the total weight 193.17 tons. Thus, in 2012, the growth in this segment appeared quite low – 1.9% in pieces and 3.1% by weight in regard to 2011. As for the import, in 2012, the share of imported silver jewelry amounted: in pieces – 24% (12.23 million pieces), by weight – 29% (57.97 tons). While in 2011, the import was: in pieces – 22.1% (11.06 million pieces) and by weight – 30.2% (58.41tons).
According to the data of the other state agency, Rosstat (Federal State Statistics Service), the production of jewelry with diamonds grew by 13.7% compared with 2011, and amounted to 1.7 million pieces. While the number of wedding rings, manufactured in our country during the last year grew only by 1%, compared to the previous year, and was 741 thousand pieces.
The information from Yakutia, the Russian diamond-cutting center, is not very impressive. In 2012, the Republic notably reduced the production of diamonds. It is due to the economic crisis in the countries of Europe and Asia, where more than a half of produced in the republic stones are exported. According to preliminary data, the republic produced stones amounting to 150.9 million dollars, instead of earlier planned 242 million dollars. Thus, the decline, compared with the same period of 2011, was 37%. In the jewelry industry of Yakutia, the situation is somewhat better. At year-end 2012, the output of the products is expected at the level of the plan, estimated 1300 million rubles. But it is absolutely obvious that in comparison with 2011, their production will decrease by 2%. Lagging behind the planned revenue is slight. Experts consider continuing alteration in consumer preferences to be one of the reasons of reducing volumes of jewelry production to the level of 2011.Taking into account the decrease in consumer demand and lack of floating funds for buying gold, companies switch over to manufacturing of more popular silver items, which cost is significantly lower. As a result, the volumes of production in money terms reduce.
The important event of 2012 for Russia on the whole and jewelry market in particular became Russia's entrance into the World Trade Organization (WTO). Already during the first months of its membership the country began to feel the pressure of import from the part of agricultural producers and to introduce protective measures for the automobile industry. As for the jewelry, the WTO has not yet made trouble, expected by pessimists: the influx of huge amounts of low-quality cheap jewelry to the Russian market, the arrival of foreign jewelry retailers and the outflow of high-quality domestic jewelry abroad. Everything is so far quiet and import bulge hasn’t happened.
It is important to recall, however, that in the framework of accession to the WTO Russia has to reduce import duties on precious metals and items made of them, as well as raw materials for their production and slash to zero rates on exports of scrap. A significant reduction of import duties is provided for precious metals and items of them, which are now imposed at a flat duty rate of 20%. So, the duty on imports of jewelry made of precious metals since 2017 must not exceed 10% (for plated products – since 2014), of silversmiths’ products, platinum catalysts and other products made of precious metals – 15%.
Since 2015 in the framework of the WTO the ad valorem import duties on watches will be reduced to the level of 7 and 12%. To be more exact, the duty rates on group 9101 goods (watches, pocket and other, for wearing, including stopwatches, with cases made of precious metals or metal, plated with precious metal) will be set at the following level:
• 9101 11 (with mechanical display only) - 7%;
• 9101 19 (other) - 12%;
• 9101 21 (self-winding), 29 (other) - 7%;
• 9101 91 (electrically operated) - 10%;
• 9101 99 (other) - 7%.
We remind that today the duty rate on watches in cases of precious metals is 20% regardless of the type of mechanism and indication.
In the framework of accession to the WTO Russia has to reduce import duties on precious metals and items made of them
Thus, the rates will decrease and rather tangibly, although not in the very near future. On the one hand, it will create difficulties for Russian jewelry manufacturers, making easier the import of as it is cheap products from China and India. And on the other hand, as the supporters of the accession to the WTO think, this step will have a favorable impact on the jewelry quality, the rise of level of service, etc., that will eventually lead to the increase of competitiveness of Russian companies in the world market.
Standing firmly on their feet, Russian manufacturers justly note that none of the Chinese manufacturers will be able to provide the Russian jewelry retail with such cooperation conditions as give ours: delay of payment, shipment of goods without prepayment, etc. Nevertheless, in the current economic conditions for many buyers price is of great importance. And this factor, unfortunately, does not belong to the strong point of the domestic jewelry products. So the share of imports will go up.
For protection of interests the officials from the Ministry of Economic Development recommend “to unite and knock”, at that, to knock at all the doors and more actively. So, Victor BATANIN, Deputy Chief of the consumer products sector of the Department for Trade Negotiations of the Ministry of Economic Development of the RF said at the seminar “Russia and the WTO: conditions and opportunities for small and medium-sized enterprises", held in Kostroma in December 2012, “Business must pursue aggressive policy. The normal state of things is not when the government issues directives for business, but when business itself informs of its problems. We have enough instruments for protection and support of entrepreneurs; all that is needed, is your activity; in our Ministry there is a subdivision which deals with eliminating barriers for Russian goods in overseas markets and helps Russian companies, facing the challenge. So today's task of small and medium-sized entrepreneurs is to unite, perhaps, within branches, that they could convey to the Government their fears in connection with the entrance into the WTO and be heard by the authorities, that they take appropriate measures to support and protect them”. |
One of the serious risks of Russia’s accession to the WTO is decrease of purchasing power which will immediately have an impact on jewelry purchasing. The WTO demands from Russia the equalization of domestic energy prices, and that will lead to the growth of communal public services prices, and this, of course, will affect the sales of jewels, which are not goods of prime necessity.
At the end of the year three companies simultaneously published the results of study of the Russians’ consumer sentiments. On the one hand, the data of all the three companies indicate the growth of the citizens’ material well-being, and on the other hand, the growing economic insecurity can make the Russians pinch pennies.
According to the results of the “Deloitte” company’s survey, made on the basis of the analysis of consumers’ expenditure during the period of Christmas and New Year holidays, on the eve of 2013 New Year, the Russians’ optimism could be envied. The nationals’ confidence in stability of economy has grown up: 50% of the Russians consider the economic situation stable, and 15% point out the economic advance. The number of respondents, who believe that the economy is in the decline stage, fell by 33% compared to the last year.
But the data of the All-European study of consumer sentiments suggest otherwise: the Russian customers’ confidence in the economic development is falling. European Performance Satisfaction Index (EPSI) in regard to economic improvement in 2013 again has decreased by 13.1% and lowered to the level of 29.4 points. Consumers’ confidence has shown negative trend. Consumers’ attitude to the economic development is worse than in 2011. The indices have approached the level of the second quarter 2008. "Such a situation was also observed in Russia at the end of 2008, just before the crisis. The same was in the second quarter of 2011 and as a result again crisis phenomena, as well as such a low level of customers’ confidence forecasted the economic depression in Latvia, Lithuania, Estonia and the Czech Republic”, note the authors of the study.
Despite the contradictory assessment of the economic situation as a whole, the forecast of the improvement of personal well-being, according to all researchers, is favorable. So European Performance Satisfaction Index (EPSI) in regard to the improvement of personal well-being during the next 12 months increased by 4.4% to 52.3 points. The results of the "Deloitte" company’s study say that the buying capacity of the majority of the Russians (83% of the survey participants) either increased or remained the same as it was in 2011. While 38% of the Russian respondents reported that their financial capacity in 2012 increased, and 36% expect growth in 2013.
In conclusion, here are the data of one more research of the global consumer confidence by Nielsen Company according to which the Russians assess their personal financial situation more positively as well as the time for purchasing. According to Nielsen, in the third quarter, these activities increased by 7 and 6 percentage points respectively. The consumer confidence index remained at the same level, 87 points. “Improvement of such indicators, as a state of personal finances and readiness to spend spare money, reflects the advance of real wages in Russia and is confirmed by the growth of retail sales”, says Paul WALKER, the Regional Director of Nielsen in Russia and the countries of North-Eastern Europe. Thus, the majority of inhabitants of Russia believe that their situation will continue to improve next year or at least will not change.
Author: Tatyana MIKHAILOVA