Jade Report: Increased Mining Creates Large Stockpiles
April 7, 2017
The Chinese retail market has been cooling off, but jade mining in the Kachin province of Myanmar has been on the increase, causing a massive stock build-up, according to a report by the Ash Center for Democratic Governance and Innovation of Harvard University.
The report is based on information from government sources and traders in Hpakant, Kachin province, the 30-square-mile source for nearly all jadeite. The authors noted that production began to expand in 2015 and jade dealers in Hong Kong corroborated the report’s observation of large and growing stockpiles of the gem in warehouses near the Myanmar border and in dealers’ safes. It does not estimate the size of jade stocks, but interviews with others involved in or monitoring the jade trade agree it is extremely large.
“If China wanted to whittle down their stockpiles, they probably could do without (newly produced) jade for five to 10 years,” said one Myanmar-based official with close connections to dealers and the government.
Jade stocks are accumulating because production has far exceeded the market’s ability to absorb it. Some goods are locked in customs over ongoing valuation disputes and, more recently, there has been a reluctance to sell better quality materials because prices have been softening. Producers and dealers can sit on large stocks because the capital costs of mining are low, they do not rely on bank financing and they don’t incur additional costs by holding stock.
The report shows that jade production for the first nine months of 2015 (the latest available figures) totalled 24,000 metric tons, or 2.5 times that of the same period in 2014.
Myanmar’s central government cannot control illegal mining, according to the report, because it is involved with the rebel Kachin Independence Army, which has ratcheted up campaigns against it. The government has tried to limit access to the Hpakant region, by restricting new mining licences and attempting to suspend mining after a series of deadly rock falls.
But mining for jade continues and as many as 200,000 unlicenced diggers continue to work the extensive waste piles, which has created enormous social problems and unsafe conditions. Nine diggers were killed on 10 Feb when a slag pile collapsed on them, according to a report by Radio Free Asia.
Retail Demand for Jade is Decreasing
The Ash Center estimated jade production at Hpakant to be worth $7.9 billion (£6.3 billion) in 2011, possibly increasing to $15 billion (£12 billion) in 2015 because of the rise in mining activity. A 2015 Global Witness report estimated the jade trade at $31 billion (£25 billion), a figure most analysts agree is excessive. To put that number in perspective, worldwide rough diamond production in 2015 was valued at just under $14 billion (£11 billion), with the worldwide polished wholesale market valued at $22 billion (£17.7 billion).
Chinese jewellery retailers report that jade sales slowed by 20% or more in 2016. Jade dealers at the September 2016 Hong Kong Watch and Jewellery Show noted that prices for the gem, even top quality “A” grade material, had fallen substantially − by 20% to 40% in the past two years − as the Chinese government has begun to crack down on large cash purchases as a way to curtail corruption. In addition, the Chinese government has also enacted an excise tax on jade imports to discourage demand.
China’s top retailers do not break down sales by gemstone categories, but the country’s largest chain, Hong Kong-based Chow Tai Fook’s 2,057 stores logged sales of $7.2 billion (£5.8 billion) in 2016, down from a 2014 peak of $9.9 billion (£7.9 billion). Gem-set pieces (including jade) account for 27% of the company’s sales.
Sales at Chow Sang Sang, another prominent Chinese jewellery retail chain, fell 16% in the 2016 financial year, to just over $1 billion (£800 million) and Luk Fook Holdings, also a large jewellery chain, saw its sales decline 21% in the 2016 financial year to $700 million (£560 million).
The majority of jade is worked on in China with an estimated 500,000 people employed in the various stages of processing, according to dealers. It is mostly sold through specialised retailers or traditional marketplaces that don’t disclose their sales activity. An increasing amount of medium quality “B” and lower quality “C” grade jade, however, is being sold via Chinese Internet sites such as Weibo and WeChat. These Internet sales are hurting traditional jade retailers, according to reports in China.
The Future of Myanmar Jade Mining
Regaining sufficient control over Myanmar’s jade production to regulate production, enforce environmental and safety standards, and restore government revenues would be a very difficult task, according to the Ash Center report.
The conflict in Kachin, a large province in the north central portion of the country, has been raging for years. Some officials of the Kachin Independence Army earn money trafficking in illicitly mined jade, in addition to collecting “tolls” from individuals and companies travelling through the area, according to the report. Any settlement must take these factors into account.
Complicating matters, mine concession owners, many of whom are Chinese, need to be willing to pay sufficient taxes to support government health and education programmes, particularly because drug addiction remains rampant, especially among miners, who require these social services.
The Ash Center has proposed a revenue-sharing structure that will enable mine owners to keep their concessions, while paying royalties of 50% on the full wholesale value of exported jade, plus business taxes. An elected government in Kachin, supported by both the military and separatist groups, would enforce environmental policies and provide health and education services to the populace. Non-governmental organisations could serve as monitors to ensure that these standards are upheld.
The report also maintains that an equitable power-sharing arrangement would make it possible to develop hydroelectric power operations and the ability to responsibly mine for other resources in the area, including amber and gold.
Russell Shor is senior industry analyst at GIA in Carlsbad.