RAPAPORT...
ALROSA, Russia’s largest diamond miner, generated $2.1
billion revenue in the first six months of 2011 from sales of 19.1 million
carats. Although that dollar amount is 2.7 percent higher than for the same
period in 2010, the first-half 2011 volume of rough and polished sales is 22.6
percent down from the previous year’s 24.7 million carats. ALROSA attributes
that imbalance to the fact that this year’s average price per carat is almost 30
percent higher than in 2010. In the first six months of this year, the company
also increased its output by 9.9 percent to 19.3 million carats.
The miner sold 27 percent of its rough in Russia, while 47
percent of its sales were made to Belgium, followed by India and Israel, which
bought 11 percent and 8 percent, respectively. ALROSA sold 65 percent of its
production through long-term contracts, as it did in 2010. However, it
increased the volume of rough sold through auctions by cutting back on sales made
through spot contracts.
Second Half
The picture is likely to change in the second half of 2011
because ALROSA already has announced it is cutting back its supplies to the
market, keeping up only with its long-term contracts. The company said rough
sales declined in the period of August to October due to the usual seasonal slowdown
and less speculative trading because the turbulence of the global financial
market reduced liquidity. “Sales on the spot market constitute the bulk of
speculative activity,” said Andrey Polyakov, ALROSA representative. The prices
of rough fell at the end of August and during September by as much as 20
percent for so-called Indian rough. ALROSA said it will adjust its sales policy
in November, depending on how the market behaves in October.
Russian manufacturers and diamond dealers generally approved
of ALROSA’s recent actions. “Cutting supplies to the market was a step in the
right direction because the company would have been under pressure from its
clients to cut prices,” said Valery Morozov, director general of Ruis Diamond,
the Russian manufacturer owned by Lev Leviev. “The market would react badly to
a fall in prices and the situation would have worsened.”
Uncertainty
The market remains tense because people are waiting to see
what will happen next. On the one hand, finding diamonds is not a problem. “The
secondary market is not bad because there are many companies with stock on
their hands,” said Alex Popov, the president of the Moscow Diamond Bourse. He
said the secondary market has seen a rise in activity because companies can’t
get goods from ALROSA. On the other hand, many are unsure about the price. “No
one is in a hurry to sell off their stock,” said Morozov. “Everyone is trying
to hold onto their money and the banks are also nervous.”
The situation with rough affects polished. “Manufacturers
are unwilling to use their rough in production,” said Anton Chepotiev from
Almoss, Moscow-based diamond dealer and jewelry maker. “If the prices for rough
go down, it will help energize the polished market, as well as manufacturing.”
The Russian market also has been affected by the fall of the
ruble, which has lost more than 12 percent of its value since July. Russian
jewelry makers and consumers didn’t feel the decline in polished prices so much
because it was offset by the ruble devaluation.
Jewelry Sales
Most companies describe demand for jewelry as flat, with
some saying retail sales are slightly lower than expected. “The purchasing
capacity of consumers hasn’t been restored,” said Ilya Agadzhanov, development
director of the Ekaterinburg-based Treasure House. He says the company has
begun using more platinum and diversifying its designs to attract customers.
Many manufacturers say creating new assortments of jewelry
helps to distract buyers’ attention from increased gold prices. Companies raise
their prices cautiously so as not to turn off buyers and wholesalers and to
preserve their sales volumes. “We are cutting down our profit margin in order
to preserve the market share, but we will be able to do that only for a certain
period of time,” said Flun Gumerov, the director of Almaz-Holding, one of the
country’s biggest jewelry manufacturers.
The companies also are trying to make jewelry lighter to use
less metal. “Items with diamonds were less affected than items without stones,”
said Ekaterina Usenko, the head of sales for Aris, a Moscow-based diamond
jewelry manufacturer. “Light items and those with semiprecious stones, such as
quartz and onyx, have been our best sellers,” said Veronika Boyarskaya, head of
sales for the Moscow jewelry factory Elite.
All manufacturers and retailers expect sales to pick up in
November. “Despite the crisis, people still buy presents for major holidays,”
said Gumerov. But how much they spend will depend on the price of gold, stones
and the dollar.
The Marketplace
- Russia produced 934,000 jewelry items with diamonds in the
first nine months of 2011, which is 18.1 percent higher than for the same
period of 2010.
- The production of items with diamonds increased 18.9
percent in September compared to August levels, according to the Russian
Statistics Bureau.
- The Russian Assay Chamber stamped 23.57 million gold items
in the first nine months of 2011 and 1.72 million imported items, with the
number of imported gold items up by 44 percent over 2010.
- Russian companies produced 15 percent fewer silver items
in the first nine months of 2011 than for the same period in 2010.
Article from the Rapaport Magazine - November 2011. To subscribe click here.