Rapaport Magazine

Gauging Supply and Price

Russia November Market Report

By Anastasia Serdyukova
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.

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