The Italian jewellery sector in 2018
The third quarter of 2018 registered a positive trend in global demand for gold jewellery with an authentic leap in quantity (+6%) after the feeble or negative data recorded in the previous quarters. According to the World Gold Council, the weakness in gold prices encouraged purchases, especially in India (recovering after downturns during the previous quarters), in China (also favoured by Qixi, China’s equivalent of St. Valentine’s Day) and in many other markets in South East Asia. Middle Eastern countries, however, were still in difficulty, according to statistics released by the World Gold Council.
Fig. 1 – Global demand
Source: Intesa Sanpaolo World Gold Council data processing – Gold Demand Trend
The leap in global jewellery demand compared with a fall in prices, is a factor also reflected in Italian export dynamics. In the third quarter, in fact, with the negative trend in gold jewellery exports continuing (with a
-8.8% variation in Euro values) clashed with a particularly brilliant 2017. Quantity, on the other hand, developed with a significant leap forward (+35.7%), which implies brusque movements in average unit values (AUV, values divided by quantities).
Fig. 2 – Gold jewellery export development * (% var. trend)
Note: (*) Code 711319. Source: Intesa Sanpaolo Istat data processing
In the overall first nine months, foreign sales dropped by 4.1% in value, while they increased by 20.8% in quantity (to a total sum of 28 tons), implying a reduction in average unit values of about 20% in most countries.
The geographic details show how the fall in values in Euro was common to almost all the main destinations with the exception of the United States (+3.2%), the United Kingdom (+27.2%) and South Africa (+12%). In the same way, the growth trend in quantity involved every country with only the United Arab Emirates registering a drop of 15.2%, confirming it as one of the markets where Made in Italy gold jewellery sales are suffering most greatly.
Table 1 – Development of gold jewellery exports * in the first nine months of 2018 (var. % trend var.)
Note: (*) Code 711319. Source: Intesa Sanpaolo Istat data processing
The French result particularly stands out: shipments of gold jewellery to France in the first nine months of 2018 actually grew by 86.6%, equal to 7 tons more compared to the same period in 2017, with a concurrent collapse in average unit values of over 50%, which could also reflect changes in transfer price setting within French multi-national groups whose jewellery production is based in Italy. In fact, it should be pointed out how last year’s implied average unit values regarding export flows from Italy to France had reached particularly high levels compared to the average national figure (with a leap of 32%). It would therefore seem to be a sort of “normalization” of the average values recorded in the previous years. The data concerning the third quarter highlight a recovery in positive export rates towards France, even in terms of values (+16%).
The quantity of gold jewellery exported towards the United States also registered a considerable increase (+51.4%, equal to 5 additional tons), underlining this market’s strong interest in Italian jewellery, in this case, also expressed in value data.
The positive trend in quantities sold abroad is coherent with the even greater growth development in the sector’s industrial production index (which includes costume jewellery and silverware). Production recorded an 8.3% increase in the first 10 months with a new significant acceleration in the month of October, marking an extremely high development rate (although slower than the +17.4% average in 2017), clearly higher than the +2.6% average trend registered by Italian manufacturing in the same period.
Fig. 3 – Development in industrial production index (trend % var., raw data)
Fig. 4 – Development in turnover index (trend % var., raw data)
Source: ISTAT data processing
Source: ISTAT data processing
The turnover index (which is in value) also continued to grow, although in this case, the slowdown compared to 2017 data was such as to take the fine and costume jewellery sector to the same rates as manufacturing.
On a territorial scale, where the data are only available in value and for the aggregate, which includes costume jewellery, the first nine months of the year confirmed the national downtrend. In more detail, in the overall nine months, Vicenza recorded the most pronounced reduction in values (-4.8%), with a clear worsening in the summer months (the difference recorded between July and September 2018 and the same period in 2017 was -8.1%). The third quarter in Arezzo also saw a notable arrest in exports (-7.1%), which took the figure for the first nine months to -2.3%. In the Valenza Po district, export rates (again negative) remained stable in the first part of the year (measured with the relative figure for the entire provincial area, as were the other production poles).
Fig. 5 – Fine and costume jewellery export development (trend % var. in value regarding provincial data)
Source: ISTAT data processing
To be more precise, in Vicenza the negative data involved many markets, especially the emerging ones: Hong Kong (-16.4% in the first nine months), United Arab Emirates (-19.2%), Jordan (‑32.4%), Romania
(-22.3%) and Turkey (-12.8%). Authentic collapses in export values to Jordan (-56.4%) and Turkey (-42%) played leading roles in the summer months and particularly stood out.
However, the opposite is also to be underlined for the United States (the top market outlet in 2017) which recorded an average stable trend in the first nine months of the year and an improvement in the third quarter. Signs of recovery also in exports to the United Kingdom (in the wake of a negative result in 2017), which, with the third quarter data, seems to have stemmed the fall. Direct exports to South Africa were also good and clearly speeded up in the third quarter.
Tab. 2 –Vicenza gold district exports
Source: ISTAT data processing
Arezzo district’s exports are also continuing to feel the effect of significant and continual drops in the United Arab Emirates (-17.9% between January and September, with a -27% in the third quarter). Like Vicenza then, Arezzo also saw a brusque downturn of sales to Turkey with a ‑26.7% reported over the summer months. Results relating to the USA, on the other hand, improved, taking the district back into positive figures between July and September, although enough to be able to report an overall growth rate for the first nine months of 2018 (-8.2%). Compared to Vicenza, however, Arezzo managed to maintain sales to Hong Kong at good levels: after the exceptional +21.6% of 2017, Arezzo exports grew by 1.8% in the first nine months. The development rate of the French market (which stayed around +20%) was also good. Lastly, the excellent sales results, although at limited levels, in Panama and Lebanon are also well worth mentioning.
Tab. 3 –Arezzo gold district exports
Source: ISTAT data processing
Exports in the Valenza Po district, however, were decidedly more focused from a geographical point of view, with almost three quarters of sales made in Switzerland and France. As highlighted also on a national level, the result towards France was what particularly conditioned the overall data. In the first nine months of 2018, jewellery shipments from Valenza to France experienced a drop of 20.9% to then improve significantly over the summer. More recent data regarding exports to Switzerland, on the other hand, showed an abrupt downturn (-10.3%) after a more energetic start to the year, something which also occurred for exports to the USA (-9.8% in the third quarter which, in any case, concluded the first nine months with an overall positive result of +3%). After the extraordinary +55.2% of 2017, direct exports to Hong Kong finished badly (-14.6%, plummeting to -25.6% in the July to September period).
Tab. 4 –Valenza Po gold district exports
Source: ISTAT data processing
The prospects for the closing months of the year seem set towards cautious optimism. The awakening in global demand, although in a context of considerable uncertainty, leads to a belief in the probable continuation, also in the latter part of the year, of the trends revealed by the first. We expect that demand from Asian markets and the United States will continue to be vigorous while demand in the Middle Eastern countries will continue to meet with difficulties
The prospects for 2019 appear more uncertain, influenced by the possible recovery in precious metal and gem prices (see the next paragraph) which could have a negative impact on the signs of jewellery demand recovery recorded in the second half of 2018. In any case, in our scenario, the price of gold should remain – on an annual average – around 1,250 USD an ounce, a level just slightly lower than that of 2018.