The trends on the Polish and global amber product markets in 2008

Wieslaw Gierlowski

The concentration of Baltic amber (succinite) extraction in a small fragment of the Russian enclave in the Kaliningrad Oblast’ and the equally tiny area of the Ukrainian deposit near Klesiv, on the Volyhn and Polessye frontier, which together yield almost all of the raw amber supplies for the entire world market, accounts for the dominant share of the export from these countries to the countries which have the most advanced amber manufacturing bases, i.e. to Poland and Lithuania, and recently also to Taiwan and the People’s Republic of China.

The raw amber supply shortage

Since 2003, the Russian Amber Factory in Yantarny has been exporting over 70% of its raw amber output (in 2006 as much as 90%). However, in terms of volume these numbers are constantly diminishing due to the collapse of the scale of extraction. Although raw amber prices are steeply rising year-on-year, the value of the exported material is small and has never exceeded 15 million dollars per annum.

In the context of global international trade, which has consistently exceeded 15,000 billion dollars every year in recent years (arms excluded), this is a practically trace quantity: about one-millionth. So it would be hard to speak of any importance amber might have in the economic dimension of international trade. The export sales of finished goods with amber matter somewhat more in international trade; over 90% of these exports are by Polish and Lithuanian companies and they are estimated at USD 360,000,000 (including inter-European trade, i.e. export to other countries of the European Union). This sum (expressed in dollars) has not risen for several years, which in practical terms means a regression given the US currency’s diminishing purchasing power and the precipitous drop in its exchange rate.

The small trade volumes and the small number of countries interested in this niche economic phenomenon are the reason why the amber trade does not stand out in official statistics. Poland is an exception, as this branch of the economy, which is so typical and traditional here, is monitored by the Mineral and Energy Economy Research Institute at the Polish Academy of Sciences (PAN) in Cracow, who I have been working with on the analysis and assessment of extraction, trade and processing for over a dozen years. The above amounts are quoted in the Institute’s annual reports for the Polish government.

The rise in material costs as a threat to profitability

Up to the turn of the last century, the export of pure amber products and silver jewellery with amber ensured the opportunity to obtain much higher prices than the wholesale prices in the countries which dominate amber jewellery manufacturing, i.e. Poland, Russia and Lithuania. In the case of products of high quality and excellent design, export prices could be as much as double the price quoted in the manufacturer’s country (in Russia even three times compared to the low local prices).

Today, the profitability of export to the faraway American and Far East markets has radically dropped as the result of the fall of the dollar’s exchange rate with a simultaneous rise in sales costs (agents’ commissions, travel, exhibition stands, etc.) and the costs of transporting and forwarding the merchandise. These factors have got a smaller, although still significant, impact on transactions within the European Union. The trade and customs facilitations introduced when the borders were opened have reduced sales costs, but have also significantly helped to even out the wholesale prices in Western European countries with the domestic prices in the main manufacturers in Poland and in Lithuania. Domestic customers seem to be more understanding of the need for price increases caused by the shortage of amber and even more by the rise in silver prices (also the prices of gold, whose share in the Polish amber jewellery portfolio, although admittedly small, is growing quite rapidly) than customers from abroad. Lithuanian companies, who manufacture chiefly products without precious metals, have experienced the change in the prices of materials to a lesser degree.

The rise in the price of precious metals has chiefly affected Polish manufacturers, specialising in the manufacturing of jewellery which out of necessity (due to the limited imports and the barely budding extraction in the Vistula River Delta) is decorated with ever-smaller stones. The share of amber gemstones in the total weight of finished goods had already dropped to 9% in 2007, although visually this means almost half of the finished piece because silver’s specific gravity (weight) is ten times greater than that of amber.

However, it is weight and price per weight unit that are decisive in terms of manufacturing costs, and in the case of silver this price has risen even more than the price for amber gemstones. According to statistics provided by KGHM (the largest Polish exporter of precious and semi-precious metals), the price for an ounce of silver on 1 May 2004, i.e. the day when Poland joined the European Union, was USD 5.48; today, on 2 July 2008, it is as much as USD 17.92 (in February 2008, it rose to as much as USD 20.94). What we are dealing with, then, is an over three-and-a-half-fold increase in price, whose impact is strengthened by the growing share of silver in the total weight of the products.

The Polish domestic demand for hi-end amber products is growing

The promotional activities of Polish manufacturers are strongly supported by cultural institutions, mainly museums, and by the media: from the press, through television and radio, to highly effective online publications. It is worth noting that computer monitors are much more effective in displaying the glow and beauty of amber than the same images on hard copy. The combination of amber and fine silver alloys has become a Polish speciality not only in jewellery, but also in tableware, cutlery and decorative objects. There is a reduced demand for cheap souvenirs like raw amber necklaces and bracelets, as well as for various trinkets made with small, polished nuggets called drum polished gemstones.

One the other hand, there is a ready market for various kinds of amber figurines. Unfortunately, most of them are banal and unsigned. The lion’s share of these figurines comes from Russia and Lithuania, where pressed amber crumbs or amber meal are generally used as the base material. The lack of a permanent individual stamp on the unbranded figurine, in contrast to products made in precious metals where it is always found, means that the purchaser risks buying a forgery, made for example of modified copal, which is very difficult to tell from amber. The supply of the traditional natural amber decorative objets d’art is scant and the prices of the few products of this kind offered in galleries exceed the buying power of even very affluent Polish consumers. Nevertheless, the very showcasing of beautiful and precious objects is of significant promotional importance to the given gallery and the Polish amber industry as a whole.

All told, at the start of the 2008 autumn season, we can expect economic success thanks to the rise in domestic demand. Certainly, it will be the leading retailers that will profit the most, in keeping with the catchphrase popular among pre-World War II Polish traders: "better a metre-long counter than a 10-metre workshop."

 

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