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05 october 2015

maxim_shkadov_xx.jpgIn early September, Interfax hosted a press conference with the participation of Maxim Shkadov, CEO of Russia's largest diamond manufacturer Kristall on the further fate of the Replica of the Great Imperial Crown made by Smolensk gem cutters.

Maxim Shkadov told the audience how his company had come over the idea to ​​recreate the Crown of the Russian Empire and discussed its further fate, as well as answered questions from Rough & Polished regarding the state of the diamond market and its prospects.

How did the idea to ​​create a replica of the Great Imperial Crown come about?

We celebrated the 50th anniversary of our company and, accordingly, the anniversary of diamond cutting in the Russian Federation. I wanted to do something that would have summed up the results of activity several generations of diamond cutters were part of. As it turned out, there were two other outstanding events coming - the 400th anniversary of the Romanov dynasty and the 250th anniversary of the coronation of Catherine the Great. We wanted to create a unique piece of jewelry that would show the beauty of Russian diamonds made from Russian raw materials, as well as the skills of our gem cutters. This is how this idea arose and we worked through it for a few months obtaining permissions along the way (the original crown is not subject to be transferred and is kept in the Kremlin). We made a 3D-model and simultaneously started to manufacture polished diamonds for this project. As a result of hard work of about 60 people in the course of six months, the Crown was reproduced and its first presentation took place in Moscow. So, when Kristall was celebrating its 50th anniversary, we showed it as a major achievement of Russian diamond cutters and jewelers. The Crown started to travel across Russia being exhibited in museums and cities - from the Hermitage Museum in Saint Petersburg and the State Historical Museum in Moscow to Kaliningrad and Yuzhno-Sakhalinsk. The Crown has been given a very high appraisal by experts.


Now we are putting it on sale. For this purpose, we have created a special site in two languages ​​at, where anyone can see all the details and characteristics of the precious stones and metals used to make the Crown. The site features comments on this project and has a feedback option. We do not expect a quick response, but we invite all the auction houses and art patrons to purchase it.

The Crown has 11,426 diamonds weighing a total of 1,928 carats. The largest diamond, which is an oval-cut stone 10.11 carats in size, is surrounded by 74 sea pearls and a rare large rubellite weighing 384 carats. The Crown weighs 2,300 grams. We have not taken it out abroad and we hope that it will remain in this country - art objects of museum value ​​must stay in the Russian Federation. Our offering price is 1 billion rubles (it is about 15 million U.S. dollars). Of course, this is a masterpiece of Russian gem cutters and evidence that they are among the best artisans in the world and are able to make jewelry of any complexity.

You once said that Russia almost did not produce any goods worthy of global branding. What is the current situation with creating a Russian diamond brand of a world level?

Russian polished diamonds are one of a few products, which are absolutely competitive in the world market. It is true. Creating a Russian diamond brand is a complicated and expensive process. It can only be mastered with the support of diamond mining companies. Then, do not forget that this process is not possible without jewelry. Like it or not, any diamond is just an insert into jewelry. It is also necessary to calculate the economics. Different areas have different costs, and the approach to diamond processing should be different.

For example, to create competitive goods having production costs existing in Yakutia it is necessary to produce high-quality diamonds, but for that, we need experts virtually unavailable there. However, this does not mean that these issues are not worth tackling! The rapid development of computer and laser technologies requires appropriate personnel. We are training such personnel in Smolensk.

Yakutia is able to find its niche in the polished market and has done a lot to do this. Raw materials, financing and marketing - these are the components of success. Of course, rough should be appropriate. Many make a mistake, calling Russia's diamond assortment the best. In my opinion, the best is the one that can confidently be called profit making.

Is there a crisis-time assortment of diamonds? What kind of polished diamonds have been sought for mostly in recent time?

The assortment is constantly changing. Demand for “one-caraters” has dropped giving ground to medium size and small diamonds. As a rule, people save on the size of stones, so large-size diamonds up to 3 carats usually have lower sales in crisis.

What is the situation with the sale of Smolensk diamonds and diamond jewelry?

It would be good to have better sales. But we are working in this direction. Recently, we launched our online store. In fact, this is a unique project: it allows people to not only buy a diamond, but to choose a proper setting and put it all together and have a sort of exclusive thing in the end – doing all this online. There are similar sites in the world, but in this country, it is for the first time, and we intend to develop this project further. Today, it is the only site where you can get professional advice regarding the value of diamonds and jewelry. Again, buying online saves time and money for the client, which he or she would have spent moving around in reality. We are trusted, and there were no precedents of short selling on our part. We pin certain hopes on this project.

What problems do you consider the most important for the domestic diamond market today?

These are funding, the so-called "over-regulation" of our sector and taxation. We work closely with the Russian Jewelers Guild regarding possible amendments to the legislation on precious metals and stones. Our VAT movement mode and system-defined verification requirements hamper the development of jewelry trade and that of the jewelry industry. So, working in team with the Guild we are trying to provide a reasonable framework for the industry. In addition, we have come forward with an initiative to virtually cancel the import duty on polished goods or at least reduce it to a minimum value (2% -2.5%). Now it is 12.5%, while earlier it was 20% (so, there is some progress). These measures do not protect the interests of manufacturers, actually hampering their business making jewelers rack their brains as to how all this can be purchased, because in view of the import duties and VAT our polished diamonds turn to grow by 30-40% in price compared with goods from foreign competitors. And this is quite abnormal. Russia is producing a rather narrow range of polished diamonds, which do not always meet the needs of jewelers. We stand for establishing a dealer center to provide customers with quality diamonds of any kind. The market should be open. We seek to have open and fair trade: diamonds should be certified to make buyers be absolutely sure about the pure origin of purchased goods, etc. The domestic market for Smolensk-based Kristall is 2%, and we shall increase the company’s revenue in the domestic market, buying the missing polished assortment from our partners and then selling it to jewelers. This will be a win-win game. There is a product mix, which is not and will never be produced in Russia. It includes small size diamonds used in mass production. And we have absolute knowledge of how to work with diamonds, where to take them and how to sell them. And if the whole market is so arranged and all its players practice such operations, we are ready to do the same, and this will not have any impact on Kristall’s revenue.

How do you assess the current state of the diamond market and diamond jewelry market? What are your projections for jewelry sales, including diamond jewelry, this year?

The situation in the market can still not be called simple: there is a difficult situation in the rough and polished market today. Rough prices have ceased to be correlated with polished prices. At some point, rough was even more expensive than polished goods and diamond manufacturing found itself in a stressful situation, because its profit-earning capacity was near zero and sometimes even in the red (across the whole world, not only in Russia).

Today, polished prices are under high pressure due to a market glut. Unfortunately, the amount of rough thrown into the market is not regulated in any way. Formerly, it was the function of De Beers, but now, in the year 2013-2014, the amount of rough injected into the market was such that it triggered a historic event in July - it was the first time for a sight run by De Beers when 75% of offered rough was left on the table. This suggests that the market is seriously ill. Unfortunately, the Indian sector is experiencing serious problems as well going through a series of bankruptcies, grave enough to affect an entire chain of companies. Those companies, which used to walk a tightrope, will find themselves in a sad situation, and this does not inspire optimism.

Unfortunately, the outlook is quite negative: by the end of the year, we shall see rough prices drop and polished prices will continue to follow their downward trend.

The market position we took in 2010, having strengthened it in the high-end segment, will permit us not to thrive, but to stay afloat: our customers work with high-quality goods and in this field, there are other rules, though general trends affect this segment as well. Indian manufacturers are more affected, since bank financing, which requires greater transparency from customers and repayment of loans instead of extending credit lines - all this is causing a market storm. I believe in our Indian colleagues, but in the short term, the market will be highly volatile.

What do you think about establishing a diamond exchange in the Far East?

The intention to develop Russia’s Far East can only be welcomed. But the diamond exchange is not just a platform or room where two persons are involved in trading, while the exchange receives some commission. In the modern world, it is a trading center having certain laws – first of all, these are customs rules, logistic rules, tax rules, and so on. We cannot have an exchange as such, because ALROSA is a monopolist selling 99.9% of rough diamonds. I was at the Eastern Economic Forum in Vladivostok, and the issue of exchange trade was not discussed there - the only question is how ALROSA will handle the sale of its goods in the Far East. In this particular case, the geography of our business does not much influence anything. We have a product, which is not difficult to move and which has no high transport costs. So, business will go to where there will be appropriate legal and tax conditions. There are many examples of this kind. Everything should be determined by economics. If this will be profitable, investors will come there and take part in business. But now we should think about saving what has been created and not about creating something new. In today's market environment, it is extremely difficult.

Galina Semyonova for Rough&Polished