The Growth Prospects for the Russian Gold and Diamond Market are Questionable

11 october 2017 | Rossiyskaya Gazeta

Russia is one of the leaders in extraction of these mineral resources. In 2016, according to the World Gold Council, 274.4 tons of gold were extracted in our country. With such indicators, Russia trails only China (463.7 tons) and Australia (287.3 tons). The Union of Russian Gold Producers estimates the volume of extraction and production even higher — at 297.4 tons. The Rossiyskaya Gazeta published a material of the Deputy Head of the Analytical Center Tatiana Radchenko on the industry development prospects.

Tatiana Radchenko
Tatiana Radchenko
Deputy Head

The expert writes that the Russian gold market is shaped by global trends. Despite the production growth, which was recorded at the level of 1.2 per cent, the volume of gold export declined significantly. According to the Federal Customs Service, its total value decreased by 40 per cent, and at year-end 2016, it was USD 908 million. The final figures were also influenced by the decline in the level of the world and Russian export prices in the second half of 2016. The experts refer this decline to the cooling-off in consumer demand from India (minus 22 per cent in 2016) and China (minus 7 per cent). However, since January 2017, when the highest price decline was recorded, world prices have begun to rise again.

Although Russia is the largest gold producer, the domestic demand for it is limited. The Bank of Russia is actively increasing its reserve assets. Over the last 10 years, from 2007 to 2017, they grew almost fourfold — from 0.45 up to 1.7 thousand tons, and today Russia holds 17 per cent of its reserves in gold. And the consumer demand (jewelry, coins, ingots) in Russia is small — 37.2 tons in 2016 (minus 12 per cent in comparison with 2015). Roughly the same demand level is recorded, for example, in Iran (36.6 tons, minus 46 per cent) or Pakistan (42.2 tons, plus 12 per cent).

Russia, along with the African countries (the Republic of the Congo, Botswana, Namibia, South Africa and Angola), remains the world's largest producer of rough diamonds. In 2016, natural diamonds production volume reached 30 per cent of the physical total value and 29 per cent of the world's total value.

Still Russia is not among the world's largest gem cutting centers. The leaders here are the USA, Belgium, India and Israel. They form the largest scope of offer in the diamond market, with the USA producing the most expensive diamonds, and India specializing in cutting of raw material of the least quality. Russia occupies modest positions producing only 1.6 per cent of diamonds and 1 per cent of jewelry with diamonds of the total volume of the world diamond market.

Almost 99 per cent of all diamonds in Russia are extracted in the Republic of Sakha (Yakutia), there also small deposits in the Perm Territory and the Arkhangelsk Region. However, if there is a large number of private companies on the gold market in Russia, more than 95 per cent of Russian production in the diamond market are produced by ALROSA.

In the current economic situation, when personal income declined over the recent years and the economy growth rate slowed, the growth prospects for the Russian gold and diamond market are questionable, Radchenko thinks. There is little incentive for growth in the domestic market.

The most advantageous position for this country is to produce high value-added goods in Russia and sell them abroad. This primarily the case of jewelry production and production of items for high-technology industries with the use of precious metals and stones.

In particular, it is advisable to review the mandatory requirement for testing and branding of the exported jewelry in accordance with the domestic market requirements. It is necessary to create opportunities to sell jewelry exhibited abroad by retail, for cash and without making supply contracts. It is necessary to align the import customs duty rates on precious and semi-precious stones used in jewelry production as inserts within EEU.

A bill to abolish the mandatory requirement for testing and branding of jewelry was introduced to the State Duma, but was rejected. The second issue is dealt with by the Ministry of Economic Development of the Russian Federation within the framework of project design passport "Systemic Measures of Development of International Cooperation and Export". Certain prohibitions and restrictions on the export of certain types of products (including jewelry) are to be canceled remotely. The deadline for adoption of the relevant regulations is the 31st day of December, 2018.

In addition, there is a need to develop a system for promoting the Russian diamond cutting industry abroad, mainly through the creation and promotion of "Russkaya Ogranka" brand. But it may be said that no progress is being made in this regard. It is possible to gain such support only on general grounds as part of the promotion of "Made in Russia" brand.

Source: The Rossiyskaya Gazeta