RAPAPORT... ALROSA, Russia’s largest miner, fired Sergey Vybornov as its president in July and immediately replaced him with Fyodor Andreev, deputy head of Russian Railways, another big state-owned monopoly.
The company didn’t give any official reason for the high-level management reshuffle. But rumors that Vybornov may leave the company, which had been circulating for several months, intensified after he failed to be appointed to ALROSA’s board of directors. In an interview with Kommersant, Russia’s daily newspaper, Vybornov denied speculation that he had quarreled with Vyatcheslav Shtyrov, the president of Yakutia, the region where most of ALROSA’s mines are located.
Audit AllegationsMeanwhile, Sergei Stepashin, the head of Russia’s Audit Chamber, the government’s budget watchdog, told Interfax news agency that the chamber had found violations in the company’s activities and had recommended the dismissal of the president. An ALROSA spokesperson said it was surprised by the allegation because the Audit Chamber had been checking ALROSA’s assets from 2005 to 2007, when Vybornov wasn’t even president. He took the post in February 2007.
Andreev’s selection generally has been positively received by the diamond industry, to whom he is not an unknown quantity. He was in charge of ALROSA’s finance department in 2002 and 2003, before moving to Russian Railways where, as a senior vice president, he managed the railway’s finances. He had been working on the joint purchase by ALROSA and Russian Railways of KIT Finance, an investment bank that went bust in 2008. Andreev also was named to the so-called “presidential reserve list,” a list of the country’s top managers compiled by the Kremlin for consideration as potential political appointments. In reacting to the Andreev appointment, Ararat Evoyan, vice president of the Russian Diamond Manufacturers Association, said that, under new leadership, “There’s hope that the company’s sales policy will be developed faster.”
ALROSA’s new sales policy is the issue on which Vybornov had received both the most credit and the most criticism as president. Two years ago, he announced the company would be moving to long-term contracts with a pool of reliable clients. In the June 2009 issue of RDR, Vybornov said ALROSA “has signed contracts worth $900 million a year with 15 Antwerp companies.”
In response to criticism that ALROSA was keeping diamond prices too high for the depressed market conditions, Vybornov told Kommersant that the price of plus-17 percent from the Russian Ministry of Finance diamond price list was fair.
In 2008, in response to the global economic crisis, Vybornov decided to suspend sales to the market and to sell rough to Gokhran, the state treasury, instead. Gokhran was reported to be ready to buy almost $400 million worth of rough from the company in 2009. The decision left many in the industry concerned over what would happen to accumulated stockpiles. On the other hand, the decision did allow the company, which carries the social burden of being a major employer in Yakutia, to continue production at almost the same level as before the crisis.
The Worst is Behind UsRussian manufacturers say the global market has survived the worst time in its history but sales inside the country remain low.
“Our sales in May and June are 35 percent higher than in March, when the sales were double the amount of January,” said Nikolay Afanasiev, marketing director of Kristall Smolensk, Russia’s largest manufacturer, which sells to international dealers. He said dealers are refilling their inventory so demand is very selective, with best sellers being stones of 0.33 to 0.99 carats and 1 to 1.99 carats with moderate characteristics of K+ and VS1 to SI. Afanasiev said that 1-carat gems are being sold on average at a discount of 35 percent off Rap.
Inside Russia, sales are worse than in April and May due to the holiday season. “Gems of 0.02 to 0.04 carats see some demand, but, in general, sales are close to nil,” said Rizwan Sayeed from Brilliant Star, which deals in gems polished in Russia, India and China.
“The manufacturers are buying most of their rough abroad,” said Evoyan, noting that, while some rough is being sold by Gokhran, its prices are higher than market average. Afanasiev said that the price of rough outside Russia is around 35 percent below its 2008 peak, but one can still find even cheaper goods at up to half the peak price.
De Beers Closing Russian OfficeDe Beers has downsized its office in Moscow in preparation for closing it completely, a decision expected to be made by the board during its meeting in July. A De Beers press release gives two reasons for the closure: first, the termination of its trade agreement with ALROSA in 2008 and secondly, the decision of its subsidiary, Archangel Diamond Corporation (ADC), to back off from its agreement to develop the Verkhotina project in cooperation with Russia’s oil company Lukoil.
The Marketplace- Sales inside the country are down from April and May levels, due to summer holidays.
- Sales are better for gems of 0.1 carats and below with VVS1 and VS1 characteristics and for piqué gems.
- Demand has increased for engagement rings because August and September is the traditional wedding season in Russia.
Article from the Rapaport Magazine - August 2009. To subscribe click here.