Russia’s largest diamond miner ALROSA reduced its revenue
forecast for 2011 by $590.6 million to $4.42 billion following the company’s
decision in the third quarter to stop selling rough at spot market and
auctions. The company explained that the decision was made to stabilize prices,
which began falling in response to the turmoil in the global financial markets.
The company sold 68 percent of its production through
long-term contracts in the third quarter of 2011. Its revenue for the same
period reached $1.29 billion, with its average price rising to $142 per carat, from
$119 in the second quarter and $102 in the first quarter. ALROSA sold $894
million worth of rough outside Russia, while the revenue from domestic sales
was $270 million. From January through September 2011, the company said it sold
$3.55 billion worth of diamonds and profits more than tripled to $1.11 billion.
Market participants said ALROSA’s decision to pull back on
sales helped keep diamond prices stable, although the rough market prices fell
sharply in September, especially in the case of so-called Indian rough. “The
rough prices have stayed at the same level the past few months,” said Valery
Morozov, director of Ruiz Diamonds. Market participants say ALROSA did lower
the price slightly for some rough in November. Rajesh Gandhi, director of
Choron Diamond, said many buyers expect the company to lower its price by
around 5 percent in January.
Production Forecast
Turbulence in the market didn’t affect ALROSA’s output
forecast for 2012. The company plans to mine 34.6 million carats, which is .4
percent higher than in 2011. The miner increased its output by 4.5 percent in
the first nine months of 2011, compared to the same period in 2010. Meanwhile,
the diamond output of DeBeers increased by 1.5 percent, and Rio Tinto and BHP
Billiton decreased their production by 17.6 percent and 28.4 percent,
respectively.
ALROSA’s 2012 plans include an increase in its capital
construction spending by 32 percent and in its geological and exploration
expenses by 31.7 percent. The investments will help with the company’s
long-range plan to double its output from underground mines.
Kristall’s Results
Russia’s largest diamond manufacturer Kristall Smolensk said
its planned revenue for 2011 would reach $491.8 million and its net profit
would amount to $8 million. The company plans to invest around $100 million
improving its production facilities and technology over the next eight years;
such investment totaled $5.1 million in 2011.
Holiday Sales
There was not much fun for manufacturers in this holiday
season’s numbers because sales slowed following price fluctuations. “The
companies are saving money because they either have stock or they can easily buy
diamonds at large discounts from dealers who need to sell,” said Morozov.
Although holiday sales make up the bulk of annual revenues
for jewelry makers and retailers, they are cautious about making any forecasts
for the new year due to the stagnation in recent months. “November sales didn’t
grow compared to 2010,” said Flun Gumerov, director general of Almaz-Holding.
Ilya Adamsky, commercial director of Moscow Jewellery Factory, said although
the beginning of December was good, most goods are sold in the final two weeks
of the month. “Prices went up over the summer because of the increased cost of
gold and diamonds, so many retailers were waiting until the last moment for the
prices to drop — which didn’t happen — so they placed their orders late,” said
Svetlana Rakhmanina, marketing director of Rifesta.
Russian citizens, who have been hit less than European Union
(EU) countries by recent economic turmoil, plan to increase their 2012 spending
by 11 percent, according to research by Deloitte, an international accounting
and consulting firm. Jewelry and watches are the fourth most popular holiday
present, and 38 percent of Russians are interested in making such purchases.
Russia and the WTO
Russia’s admission to the World Trade Organization (WTO),
which became official in December 2011, is likely to bring changes to its
import duties and trading practices. The specific changes for jewelry and
diamond industry operations are not yet clear, but market participants hope WTO
membership will reduce illegal jewelry imports to the country. “If import
duties decrease, there would be no incentive for companies to bring jewelry
into the country illegally, a practice that puts local producers at a
disadvantage,” said Adamsky.
Although the Assay Chamber reports that imported items make
up around 7 percent of all gold jewelry in the country, many market
participants say the imported share is much higher, reaching up to 60 percent
by some estimates.
The Marketplace
- Russia exported 8. 4 million carats worth $1.143 billion
in the third quarter of 2011, which is a 25 percent increase in volume compared
to the same period in 2010.
- Belgium is the biggest importer of Russian stones, with
4.482 billion carats worth $757.6 million for the third quarter.
- Russia imported 53,034 carats of diamonds worth $17
million in the third quarter of 2011.
Article from the Rapaport Magazine - January 2012. To subscribe click here.