Russia’s largest diamond miner ALROSA started selling polished diamonds larger than 1 carat through tenders in March 2011. Such gems had been sold through contracts in the past, but the company moved to the auction sales approach due to increased market demand.
The miner also announced that it is expecting much higher polished sales in 2011 than the $160 million it previously forecast. “The difference between contract and auction prices for 1-carat stones can be up to 20 percent,” said Andrey Polyakov, the company’s representative. ALROSA said it was going to fulfill all its outstanding contract obligations before moving to the new sales scheme. Manufacturers and jewelry makers interviewed by RDR said the decision is unlikely to impact polished sales by other companies. However, there was a concern that ALROSA might want to also start selling rough through tenders. Polyakov said that the miner was not planning to change its rough sales scheme, which consists of long-term and one-time contracts, as well as auctions only for gems larger than 10 carats.
ALROSA is planning to increase its production to 39.6 million carats by 2018, according to a newly approved strategy. The company is currently mining around 32 million carats annually. “This is a planned gradual hike in output, which takes into consideration the shift to underground mining in 2014,” said Polyakov. He said ALROSA could produce almost 40 million carats at the moment, but wouldn’t raise its output so much at one time in order not to deplete its reserves.
The company is projecting its rough diamond sales will be $35.132 billion in 2018. ALROSA will also invest around $900 million, calculated at today’s rates, in geological exploration. The company is planning to reduce its debt to $1.9 billion by 2018 from slightly over $3 billion at the moment.
Changing the law
Russian legislation on the circulation, import and export of diamonds may be changed by the end of 2011. Manufacturers are working on suggestions to revise the 1998 law on the turnover of precious metals and gems in order to meet the new market realities. “The proposals will be worked out in March and April and will be presented to the government for approval,” according to Vyacheslav Shtyrov, the deputy chairman of the Federation council and the former president of Yakutia. Speaking at a meeting in Smolensk, Shtyrov said changes are needed to Russia’s current laws on diamond mining, taxation in the industry and circulation of gems, but it’s the circulation regulations that are likely to be amended first.
“These changes should have been done the day before yesterday,” said Maksim Shkadov, director general of Kristall Smolensk, Russia’s largest diamond manufacturer. The company made several proposals aimed at reducing the time it takes for exporting and importing rough and polished gems within the new customs union of Russia, Belarus and Kazakhstan. The suggestions include greater use of electronic documents and allowing midlevel officials in the Ministry of Finance to approve rough exports. Kristall Smolensk also suggested using unified classifications of diamonds for the three countries in the customs union. Russian manufacturers recently expressed much concern over the fact that while gems polished in Russia have to meet strict cutting requirements by law, imported stones often don’t meet the same standards and are sold at lower prices.
Polished and jewelry sales
Polished prices in Russia are expected to rise in line with the global trend, yet many jewelers report they have been buying diamonds at the same price for the past six months. “There’s a variety of suppliers so there are no problems buying good stones at a good price,” says Victor Tulupov, the director of a Yekaterinburg-based company dealing in high-end jewelry.
“We still have diamond items in inventory that were bought at older prices but, because Rapaport raised prices, the value of both the gems and the jewelry will go up,” said Elena Medvedeva from Seven Diamonds. Jewelers say more people are asking for 1-carat diamonds in rings, but few actually buy. “The preferable size for the stone is between .40 and .70 carats,” said Maria Nikolaenko from Jewelry Theatre, which deals in high-end jewelry. Pavé and small gems of less than .30 carats, usually priced below $1,000, make up most sales for retail jewelry companies in Russia.
“People would now rather sacrifice quality for price,” said Evgeny Ziablikov from St. Petersburg–based Kast. Yet the rising gold and gem prices put jewelers in tough competition and make them more cautious about which design and which gold they choose. “Moscow and St. Petersburg like white gold, while other regions prefer red,” said Ziablikov. Jewelers often face a dilemma of which design to give priority to: traditional Russian flowers and curves in red gold or more strict European lines in white gold. “Older people prefer traditional Russian jewelry, while young ones want European design,” said Anastasia Karpova from Brillianty Kostromy.
The highest-selling items in March were rings, especially engagement rings, and pendants, because they often are bought as gifts for International Women’s Day. The wholesalers enjoyed good sales in late February and early March in advance of the holiday, but now buyers are in a quiet season until May.
The Marketplace
• Russia exported approximately 40.4 million carats worth $2.78 billion in 2010, according to the Ministry of Finance. Those numbers indicate that the volume of diamond exports almost tripled from 2009 and the value more than doubled.
• The biggest importers were Belgium, India and Israel, in that order, for the second consecutive year.
• During 2010, Russia imported 79,829 carats worth $61 million.
Article from the Rapaport Magazine - April 2011. To subscribe click here.