Colored Gemstone Renaissance
July 02, 12
Recent trends emerging from the specialist colored gemstone shows in the United States at the beginning of this year indicated that for the high end of the market, demand is strong and prices seem to have gone through the roof. Of interest is the fact that the main sales driver is not the U.S. market but demand from the Far East. What’s more, top end, untreated emeralds, rubies and sapphires, along with colored diamonds, seem to be increasingly favored by a growing number of investors who have become wary of the stock market and even commodities like gold.
Colored gemstones have to make their way in this world on looks alone. Their intrinsic value is not driven by any cohesive global promotional initiative along the lines of the famous “A diamond is forever” umbrella campaign that diamond mining major De Beers ran until a few years ago. Colored gemstone mining and processing is far too fragmented and governed by too many independent forces for any cohesive supply and price-setting system.
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Gemfields, with its large-scale emerald mine in Zambia, and its integrated “mine to market” process chain management, has managed to both increase emerald prices and stimulate demand for the finished product. But it is still far short of the De Beers system that has taken diamonds to the very top of the global gemstone value basket.
Because they lack a “legend” or an emotional peg of some sort to peg their value to, colored gemstones get a very small fraction of the global retail jewelry pie.
When KPMG, the consultancy firm, produced its strategic report on the gem and jewelry industry for the Gem & Jewellery Export Promotion Council (GJEPC) some years ago, it estimated that colored gemstone jewelry constituted jus 5 percent by value of global retail jewelry sales. Yet those value figures did not – and still do not – convey an accurate picture of the impact of colored gemstones on jewelry sales worldwide.
In a world that is seeing increasing self-purchases of jewelry – driven by factors other than relationships – look and color are assuming steadily growing importance.
The results of this year’s US gemstone shows are, therefore, no really great surprise. The sad part is, however, that the domestic gemstone market in India, which processes a significant portion of the gemstones sold in consumer markets around the world, has largely not benefited from this.
“Much of this is entirely of our own doing,” says one Jaipur colored gemstone dealer who agreed to speak frankly on the condition of anonymity. “We’ve been stuck selling colored gemstones for astrological reasons and that’s what is imprinted foremost in the Indian consumer’s mind. Since the astrological compulsion to acquire and wear a colored gemstone does not require the stone to be of high quality, we have wound up selling high volumes of really bottom-end stuff in the domestic market. And we are doing this while we process the very top-end stuff that the likes of Cartier and Bulgari sell in developed markets for astronomical prices.”
The irony is that the Indian domestic market is today, one that offers about the best potential for the future of the Indian colored gemstone industry.
This is not to say that colored gemstone sales in India are only based on astrology. There has been some infusion of emotion and other-worldly attributes to them historically in India. “Selling colored gemstones was and is akin to selling a dream, an illusion,” says Dharmendra Tank of Heeralal Chhaganlal Tank, Jaipur. According to him, rubies were associated with passion and love, spinels with power, and emeralds with prosperity and luck.
Colored gemstones were actually market leaders until the advent of De Beers and its organization of the entire production pipeline with brilliant marketing for the end product. Contributing to the outpacing of colored gemstones in the marketplace was the fact that there weren’t any steady suppliers with a sizeable volume of rough until recently.
The advent of Gemfields has changed that and has impacted prices positively. Even the gemstone dealer who decries the reliance on astrology to drive sales in India, acknowledges that despite everything, colored gemstones have caught the fancy of modern Indian consumers. “Color is hip and happening today,” he says, adding, “and people are willing to pay any price for it.”
In the domestic market today, it is the fashion industry that dictates the fortunes of the colored gemstone industry more than any other single influence. A color or set of colors usually dominate emerging fashion trends. These color trends quickly translate into demand for gemstones that match or complement them.
Fashion trends also generate value. They transform low-value stones that offer nothing in the way of commercial returns into viable production propositions – quartz, amethyst, red garnet and citrine are cases in point.
Still, by far the biggest chunk of value is commanded by the “big three” – emeralds, rubies and sapphires. However, some limited volume stones such as tanzanite and intense color tourmalines have made strong progress up the value chain in recent years.
Diamonds are today offset with gemstones to add color to the pieces, says Vijay Chordia, director of Valentine Jewellery (India) Pvt Ltd. “Today’s customer is young and prefers to accessorize her outfits with gem-set jewelry. And what’s more it is available at a price point that is affordable.” According to Chordia, gem-set gold or silver jewelry moves well in prices ranging all the way from Rs. 1,500 ($26.80) to over Rs. 20,000 ($357).
“Since these prices are more affordable – this is less than an expensive sari – we can capitalize on it and increase our mid- and low-end client base,” adds Kamal Kothari of Jaipur’s Super Gems & Jewels.
So while colored gemstones have been and are now doing well, they haven’t captured the public imagination the way diamonds have. “While the (De Beers Diamond Trading Company) DTC cleverly promoted diamonds, we lagged behind,” says Kothari. “We have to build a new relationship between consumers and colored gemstones. We have to develop a specific image for our product. Also, we have to gain consumer confidence and educate people about gemstones. That will again bring our industry into focus.”
Romancing the Green Stone
Given Jaipur’s historic dominance in its processing, emeralds have naturally been at the forefront of the non-astrological, higher-value sales thrust. India – predominantly Jaipur - cuts and polishes some $250 million of the total emerald market estimated at $330 million. Prices can range from as little as a few hundred rupees to tens of lakhs per carat, but the strongest selling bracket is from Rs.5,000 ($89) to Rs.20,000 ($357) per carat. Despite Gemfields, however, the predominant problem is still regularity of supply.
Apart from Gemfields’ supply from its Zambian mine, India imports rough emeralds from all over the world – Brazil, Colombia, Zimbabwe, Afghanistan, Russia, and Pakistan. Emerald rough is also found within the country in Orissa, Ajmer and Udaipur. But many manufacturers have, over the years, turned to other stones because of the sporadic supply from these areas.
Cooking Controversies
The single biggest intra-industry and consumer issue with colored gemstones is enhancement. Emeralds are routinely oiled to fill in fissures and fractures. Heat treatment enhances the color of and even clarifies a variety of stones from aquamarine to sapphires. Glass, synthetic resins and plastic are also used to fill fractures and fissures. High demand and low or sporadic supply of good raw material are the main reasons why these practices flourish. And while none of these procedures is in itself illegal, the problems arise when they are not disclosed to the buyer.
“Transparency is essential,” says Tank. “You will get buyers for all kinds of stones. Disclose any treatment of the stone whether its effect is temporary or permanent, and you will still get a buyer. A customer who buys a fracture-filled stone, should know that the gemstone may need upkeep after a couple of years. Heat treated stones are a good option for consumers with middle or low budgets.”
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But the huge price differece between treated and untreated stones drives many to conceal treatments. “A treated stone typically will fetch roughly a third of the price of an untreated stone,” says one gem dealer, “which is why there is a very strong temptation for many to try and conceal treatments.”
Yet some stones would not be available if it were not for treatment, say industry insiders. Yellow, gold and orange citrine are invariably a result of heat-treating amethyst. Almost the entire production of tanzanite – 99 percent according to industry sources – is heat-treated to turn it completely blue or violet. Of course, the poor quality rough that would otherwise have to be thrown out is now able to be offered for the middle- and low-end market thanks to heat treatment. Heat treatment also helps meet the high demand for certain stones – blue-green aquamarine turns completely blue as does colorless topaz.
Almost 90 percent of the world’s treated rubies and sapphires come from Bangkok. They are well cut, reasonably priced and readily available. Heat treatment has helped drive sapphire sales by offering a dazzling array of colors. Sapphires are today available in black, orange, blue, green and pink shades.
But being uncertain about the product has undermined consumer confidence in the product and industry leaders are keenly aware of this. They want complete disclosure and consumer education initiatives.
“Jewelry buying is based on trust in India. We jewelers are selling trust and confidence. I have to be above board about what I’m selling. I want to win a customer forever,” says Tank.
With full disclosure, heat treatment is, in fact, a valuable asset to the industry. In response to member demand, the GJEPC has set up a modern heat treatment facility in Jaipur.
The Invasion of Synthetics
Apart from the treatment of natural stones, synthetics are another big issue. “The market for synthetics is big because of the shortages and lack of consistency in rough supply. Many manufacturers have shifted to processing synthetic colored stones,” says Tank. As with treated stones, the price differential between natural and synthetic stones is huge – some synthetics cost less than a tenth of the natural stones.
Synthetics are mostly used for imitation jewelry, and their growth is exponential. If the gemstones are witnessing 10 percent growth per year, the synthetic market doubles annually. Says one gem dealer, “It appeals to the younger segment, as they just want trendy designs. The ‘use it and throw it’ culture is in.”
Again, the problem is non-disclosure and dealers say the threat cannot be understated. “One has to be alert. Within the industry we have labs available to test the stones. But the best bet for the consumer is in either buying branded jewelry or product from jewelers who give guarantees,” says the dealer requesting anonymity.
Gazing into the Future
Going into the future, the colored gemstone industry needs a cohesive marketing strategy. It also urgently needs new and consistent supplies of rough. “You have to be able to offer enough product in order to stimulate demand,” says one, adding, “it is a closed cycle. If there is greater demand, more will then be invested in mining.”
Above all, however, the Indian colored gemstone industry is keenly aware that the future lies not in the traditional export markets, but in the domestic market. “In order to address this and get the most out of the market, we have to first break our dependence on the astrological market,” says the Jaipur dealer. “Colored gemstones offer us a wonderful future, but it is up to us to fully appreciate their value.”
The deep penetration of satellite television and the rapid evolution of the Indian consumer market towards becoming one more in consonance with global markets is driving change, however, and the Indian consumer is beginning to show an increasing appreciation for colored gemstones purely for their beauty rather than any other-worldly considerations. The relative success of low- to medium priced branded jewelry that uses colored gemstones has helped accelerate the rate of change.
However, says the Jaipur dealer, if the colored gemstone renaissance that is now blooming in other parts of the world is to take place in India in some significant measure, the gemstone processing industry and retailers who sell jewelry set with it have to change their own attitudes to colored gemstones. “We have to take the trouble to infuse our product with some emotional and fashion content as well. If we continue to simply satisfy the needs of astrology, product values will inevitably begin to sink until they hit rock bottom.”