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Clock ticking on Swiss watches’ raw materials from Russia

Diamonds shine brightly at this year's Geneva watch fair but the sanctions slapped on Russia could soon force the Swiss watch industry to produce more subdued designs.

A diamond watch
A diamond watch "Egerie Moon Phase" is displayed in a window of Swiss luxury watch and clock manufacturer Vacheron Constantin, owned by Richemont group, on the opening day of the Watches and Wonders Geneva show, in Geneva on March 30, 2022. (Photo by Fabrice COFFRINI / AFP)

Russia is a major supplier of diamonds, gold and other precious metals to the luxury watchmakers exhibiting at Watches and Wonders, one of the world’s top salons for the prestige industry.

The Russian group Alrosa — the world’s largest diamond mining company — was hit by US sanctions within hours of the Kremlin-ordered invasion of Ukraine on February 24.

According to US Treasury figures, it accounts for 90 percent of Russia’s diamond mining capacity, and 28 percent globally.

And while trade between Switzerland and Russia is modest, gold is the chief import, ahead of precious metals such as platinum followed by diamonds not mounted or set, according to the Swiss customs office.

Compared to other sectors of the Swiss economy, “watchmaking was a branch that was less affected than others by supply problems in 2021”, Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, told AFP.

But that may no longer be the case, he acknowledged, adding that it was hard to assess the repercussions for the watch industry at this stage.

“There are obviously reserves. Afterwards, we will have to see, depending on how long the conflict lasts,” Pasche said.

The booth of Swiss luxury watchmaker and jeweller Piaget at Watches and Wonder

The booth of Swiss luxury watchmaker and jeweller Piaget, owned by Richemont group, photographed on the opening day of the Geneva salon. (Photo by Fabrice COFFRINI / AFP)

Recycled gold and palladium
The Swiss luxury giant Richemont owns the Cartier and Van Cleef & Arpels jewellery firms, plus eight prestigious watch brands, including Piaget and IWC.

The group took the lead on Wednesday, saying all its brands have stopped sourcing diamonds from Russia.

The move will create a lot of work on the supply chain to find responsibly sourced, quality diamonds from elsewhere, Richemont chief executive Jerome Lambert told a press conference.

Gold supply is of less concern. For a decade or so, Richemont has been sourcing recycled gold for watchmaking, bought from industry and the electronics sector.

For palladium, used for instance for wedding and engagement rings, the group decided “ahead of the sanctions” to switch to suppliers specialising in recycled palladium, Lambert said.

Draining the stocks
At Patek Philippe, one of the most prestigious Swiss brands, the firm’s president is counting on his stockpile to ride out the storm.

“Luckily I produce in small quantities,” said Thierry Stern, who represents the fourth generation of his family at the company helm.

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC,

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC, on the opening day of the Watches and Wonders Geneva show. (Photo by Fabrice COFFRINI / AFP)

“So I don’t feel any difference yet,” he told AFP. For 2022, Patek Philippe plans to manufacture 66,000 timepieces.

“And if I can’t find certain stones, I can always do engraving,” said the head of the  brand, which relies on a wide range of disciplines including ceramics, marquetry and enamel.

H. Moser, a niche brand producing 2,000 watches a year for wealthy collectors, struck much the same tone.

“Purchases are made in advance. For example, for the casings that I want to make in 2023, I have already bought all the gold I need,” said boss Edouard Meylan.

“But maybe in six months’ time some of our suppliers will call to push back the deadlines because they haven’t received the materials,” he admitted.

Concerns over raw materials “will drive up prices, of course”, said Jon Cox, an industry analyst with the Kepler Cheuvreux financial services company.

However, compared to other sectors, luxury firms have more leeway to pass on costs to customers, he added.

At the Watches and Wonders salon in Geneva, where 38 brands are exhibiting until Tuesday, the displays are brimming with diamonds, reflecting the “generally upbeat mood” of the industry this year after a prosperous 2021.

However, given the war and its repercussions, “I imagine product development will move to more subdued luxury goods”, Cox said.

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POLITICS

Ukraine and allies lay foundations for reconstruction at Swiss conference

Allies of Ukraine meeting in Switzerland were due Tuesday to adopt a declaration spelling out the principles and priorities of rebuilding the war-shattered country, estimated to cost at least $750 billion.

Ukraine and allies lay foundations for reconstruction at Swiss conference

Leaders from dozens of countries, international organisations and businesses have been meeting in the southern Swiss city of Lugano under tight security since Monday, discussing the best path forward for reconstruction, even as Russia’s war continues to rage in Ukraine.

‘A beautiful country’: How Ukrainian refugees see Switzerland

Speaking on the first day of the Ukraine Recovery Conference, Ukrainian President Volodymyr Zelensky and a long line of government ministers described the massive destruction caused by Russia’s February 24 invasion.

“Reconstruction of Ukraine is not a local task of a single nation,” Zelensky said via video message. “It is a common task of the whole democratic world,” he said.

Prime Minister Denys Shmyhal said the recovery “is already estimated at $750 billion”. “The key source of recovery should be the confiscated assets of Russia and Russian oligarchs,” he said.

“The Russian authorities unleashed this bloody war. They caused this massive destruction, and they should be held accountable for it”.

READ MORE: Switzerland extends sanctions against Russia over Ukraine invasion

The conference, which had been planned before the invasion, had originally been slated to discuss reforms in Ukraine before being repurposed to focus on recovery.

Shmyhal laid out the government’s phased reconstruction plan, focused first on the immediate needs of those affected by the war, followed by the financing of thousands of longer-term reconstruction projects aimed at making Ukraine European, green and digital.

Those priorities are expected to be reflected in a final Lugano Declaration setting out the general principles defining a framework for rebuilding Ukraine, which should be adopted when the conference wraps up around midday Tuesday.

As billions of dollars in aid flow into Ukraine, lingering concerns about widespread corruption in the country mean far-reaching reforms will also be seen as a condition for any recovery plan decided.

The former Soviet state has long been ranked among the world’s most corrupt countries by Transparency International.

In Europe, only Russia and Azerbaijan ranked worse.

The Ukrainians have proposed that allied countries “adopt” specific regions of Ukraine, and lead the recovery there to render it more efficient. Britain has proposed taking on the Kyiv region, while a diplomatic source said France would concentrate on the heavily-hit Chernihiv region.

Total Resistance: The Swiss Cold War manual inspiring Ukraine’s fight against Russia

In all, around 1,000 people are attending the conference, including European Commission President Ursula von der Leyen, who let out an enthusiastic “Slava Ukraini” (glory to Ukraine) after insisting on the importance of rebuilding a Ukraine better than before the war.

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