An Overview of Global Market Conditions

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An Overview of Global Market Conditions

• ICA Congress May 2007
• By
• Russell Shor

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WORLDWIDE JEWELRY SALES

• Approximately 146 billion of which
• 47.2 is diamond jewelry
• 41.6 is plain gold
• 6.2 is platinum
• What about Color?

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• Only 5 is gemstone jewelry Including
  pearlsWORLDWIDE!
• REALLY??
• Does Anyone here believe this ? Or Is this
  figure Due to Underreporting?we are cheating
  ourselves. (stay tuned for a more accurate
  estimate later)
• But, first some background.

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Gemstone Market Polarizing

• TOP goods seeing record prices Last week
  Christies sold 22 ct Kashmir Sapphire for 3.4
  million---135,,000 per carat Nearly FOUR times
  the previous high price at auction Sothebys sold
  18 ct Colombian emerald for 1.88
  million--101,000 per carat.
• Howevercommercial quality corundum hard to
  sellprices softening

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MAJOR ISSUES AFFECTING INDUSTRY IN FUTURE

• Marketing/Advertising
• Distributionsourcing
• Transparency/ethical/social issues
• Finance

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MARKETING/ADVERTISING

• Other Luxury goods do much moretake business
  away from jewelry
• Only diamond (De Beers) and, Gold (World Gold
  Council) sponsor major marketing initiatives

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Worldwide Advertising

• Diamonds 200 million yearly worldwide 2x
  that from US, Indian and European retailers
• Projected annual sales growth 6 of diamond
  jewelry
• Gold 50 million worldwide Projected annual
  sales growth 5-6
• Pearls 2 million to 4 million. Projected annual
  sales growth 2007---8 to 10

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Gemstone promotion

• Negligible
• This is one reason for low projected growth (But
  not the Only one)
• In USA TV shopping is major outlet for medium and
  lower quality gemstones
• Only promotion of any consequence worldwide

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DISTRIBUTION/SOURCING

• Diminishing profits at retail and wholesale
  driving move to eliminate wholesalers and
• smaller players
• Large diamond retailers forming alliances with
  miners and diamond sightholders.
• Internet sellers have direct to DTC sightholders

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Gemstones

• Gemstones increasing ties to TV Shopping
  networks which sell most colored gemstones in
  USA. Favors Larger gemstone manufacturers in
  Thailand, India.

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TRANSPARENCY/SOCIAL/ETHICAL ISSUES

• Conflict Diamond and Anti-Terrorism legislation
  have thrust transparency issue to the fore
• Diamond industry adapting through Kimberley
  process
• Gold mining firms beginning to follow suit as No
  Dirty Gold campaign begins

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Gemstone issues

• Push to reveal Clean origins with known,
  legitimate dealers in supply chain
• Increased consumer awareness of gemstone and
  diamond treatments
• Unfavorable publicity about non-disclosure has
  eroded consumer confidence in some markets.

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COLORED GEMSTONE INDUSTRY

• Still not embracing transparency
• Rumors persistrepeated in press around
  worldthat some gem dealings help fund
  terrorist/criminal activities
• Suspect elements control some production
  /distribution sites in Myanmar, Colombia,
  Afghanistan, Pakistan
• UNDERREPORTING Exports and Sales

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Other issues

• As a result, major banks avoid industrylack of
  finance thwarts growth
• Few production figures exist and much remains
  illicitsmuggled from countries to avoid duties.
  Creates impression of suspect dealing.
• Mining conditions often dangerous, providing
  little return to artisinal miners.
• Many dealers and manufacturers continue to resist
  full, accurate disclosure of treatments.
• These make gemstone industry ripe for negative
  press reports.

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So What is the True size of the gemstone market
?

• Few authoritative production figures exist.
• At Retail.Worldwide market. Estimated at 10
  billion to 15 billionSans Pearls
• Corundum remains leader Approximately 35 of
  retail sales by value
• Emeralds 10 to 12
• Tanzanite 10 to 15

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Market Challenges

• Supplies remain problematic. Many gem deposits
  are here today-gone tomorrow
• Supply problem made more difficult by increasing
  demand for untreated goods
• Suppliers raising prices without corresponding
  increase in demand

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Solutions?

• Must support and expand ICA initiatives to work
  with producers to ensure legal, transparent
  mining and exporting of gemstones
• Ensure consumer confidence with full disclosure
  of ALL treatments in terms the consumer can
  understand
• Partner with governments to promote gemstones in
  consumer markets

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RESULTS?

• KPMG Estimates that with increased transparency
  and effective marketing, retail jewelry sales
  could increase an additional 50 billion to 280
  billion by 2015
• Gemstone sales could benefit to a much greater
  degree with proper marketing and supply
  monitoring

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FINALLY

• The rapid success of DUBAI attests to the
  benefits when the RULE OF LAW is applied
  diligently, along with hard work and good
  marketing
• Learn from our hosts example