Business

Jewellery sales in India see a drop on high base effect after GST rollout

Diamond miner Alrosa, a Russian partially state-owned company that accounts for over 29 per cent of the global diamond production, had opened an India office in April this year with an aim to increase its presence in the diamond and jewellery market here. India currently accounts for $700 million or over 16 per cent of Alrosa’s $4.2-billion global sales. Evgeny Agureev, Director of the United Selling Organization of Alrosa — the company’s sales division — in an interview with ANIL SASI said that while in the first half of 2018, rough diamond sales to Indian companies touched almost $400 million, sales of decorative jewellery increased in all of the world’s key regions, except for India. Agureev said that Indian sales have seen a drop after the introduction of the goods and service tax (GST) in July 2017 as the “tax created a high base effect when making a comparison between the corresponding periods this year and the year before”. Edited excerpts:

What are the rough diamond sales trends in India?

Being the largest diamond cutting center in the world, India is very important for Alrosa.

However, the Indian market is not only about cutting. This is a prospective country, thanks to the longstanding tradition of wearing jewellery and growing middle class.

As the largest diamond miner, Alrosa is very interested in expanding its presence in India, forming a list of reliable clients and partners. Last year, Indian companies bought our rough diamonds worth about $700 million – this represents 16 per cent of the company’s total sales. There are no specific plans to increase this share, but it’s necessary to keep it stable and maintain the balanced sales system. In the first half of 2018, rough diamond sales to Indian companies reached almost $400 million.

This year, Alrosa started new three-year contract period for 2018-2020 and signed long-term agreements with 55 companies from all over the world for the sale of gem-quality diamonds and 10 contracts for industrial diamonds. The list of long-term clients is diverse and balanced in terms of geography and type of activity of firms. It includes 15 Indian companies. However, real sales are outside the scope of these contracts, as more than 140 companies from India and with Indian capital buy our diamonds at auctions and through one-time contracts. Moreover, Indian firms are regular participants at Alrosa’s large rough diamond auctions (over 10.8 carats). Our new contract period is more convenient for our clients. Alrosa prepared more flexible contracts, allowing customers to effectively conduct business and be less dependent on market fluctuations. In addition, the company is now significantly amplifying customer service and analytics to respond to market changes more rapidly, be aware of what is happening in each region, and constantly be in a mutually beneficial dialogue.

Apart from relationship with clients, we also have another urgent task – to actively cooperate with local industry organizations and strengthen this relationship. Alrosa has a longstanding and successful relationship with GJEPC (Gem Jewellery Export Promotion Council) through the Memorandum of Cooperation. Among the issues discussed – the possibility of trading within a special notified zone opened in 2015, and the development of measures aimed at separate trading of natural and synthetic diamonds in the market. Since the illegal sale of synthetics is a very important topic for the industry, the parties also jointly solve the problem of the penetration of synthetic stones in batches with natural diamonds.

Alrosa plans to intensify interaction within exhibitions and other public events, with the help of the Indian industry organizations. This will allow acquainting representatives of the industry with the company and its capabilities, its leading position in the market and its contribution to its development.

Our Indian office, which was opened this year, is aimed at driving this process and making the interaction with concerned parties faster.

What about the proposal to introduce ‘diamond inspectors’?

Consumer protection issues against unfair suppliers of jewellery products are becoming increasingly relevant today. At the same time, industry players are actively discussing the risk of illegal mix of synthetic and natural diamonds and this is becoming an extremely important issue.

To protect the market against counterfeit, Alrosa has designed the portable diamond detector — called a Diamond Inspector — that allows the identification of natural origin of polished diamonds using three analytical methods. Result quality was proved by tests on various collections of natural, synthetic, enhanced diamonds and simulants.

A great deal of expert experience, scientific knowledge and effort were put into the device.

The Alrosa Diamond Inspector was developed jointly by the world’s largest by volumes natural diamond mining company Alrosa (PJSC) and a scientific institute TISNCM (Moscow-based Technical Institute for Superhard and Novel Carbon Materials). TISNCM specialises in R&D of superhard and novel carbon materials for technical application including high-pressure high-temperature (HPHT)- and chemical vapor deposition (CVD)-diamond synthesis… We look forward to ongoing dynamic development in this direction too particularly with regard to the development of measures aimed at separate trading of natural and synthetic diamonds in the market (in accordance with the Memorandum of Cooperation between Alrosa and GJEPC).

What are the broader market trends?

Alrosa expects a stable demand for rough diamonds of all categories in the nearest future.

Some normal seasonal fluctuations are still possible here. The world supply will be stable as well, and therefore, there are no preconditions for prices volatility.

Overall, Alrosa’s forecast on the global diamond market is moderately positive. There are some fundamental factors influencing the global market. According to experts, the global volume of supply will not increase, because the existing deposits of all companies are gradually exhausting with only a few large discoveries over the past decades. Demand for diamond jewellery, according to expert estimations, will grow 1-4 per cent a year driven by the US, China and India. In addition, the recent researches show that the consumers are still interested in diamonds and ready to buy.

We also have an update on diamond jewellery sales, as of Q2 2018. Sales of decorative jewellery increased in all of the world’s key regions, except for India. The average global growth rate was some 5 per cent higher than during the same period last year.

Jewellery sales in India have decreased in dollar terms. Today, major Indian players are focusing most of their effort on restoring their reputation and regaining the customers’ trust and confidence that the jewellery they buy is genuine.

Furthermore, Indian sales dropped due to the new goods and service tax (GST), introduced in July 2017. The tax created a high base effect when making a comparison between the corresponding periods this year and the year before.

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