In response to increased demand, ALROSA, Russia’s largest
diamond miner, plans to resume selling rough on the spot market beginning in
March 2012. The company had restricted its sales to long-term contracts in late
2011, when diamond market activity slowed against the backdrop of European
financial turmoil. Activity was at a standstill in the final two months of
2011, with traders either not renewing orders or sitting on their stock,
unwilling to lower their prices.
“The market is growing quite well,” said ALROSA
representative Andrey Polyakov. “Christmas sales in the U.S. were good, demand
is growing in China and we have more companies contacting us to buy rough.”
Polyakov said initial plans are to sell only a small amount of stones across
the full quality range to gauge both the current price levels and the amount of
speculation going on. Even with the resumption, it appears unlikely that spot
market sales will reach 2011 levels, when they made up to 15 percent of
ALROSA’s overall sales.
The company plans to sell $1.12 billion worth of rough and
polished in the first quarter of 2012, a 21 percent increase year on year. Its
January sales amounted to $318 million.
MORE IN RESERVE
For 2011, ALROSA reported an addition of 30 million carats
of diamond reserves to its balance sheet. “The company’s strategy is to make up
the volume it extracts by adding the same amount to the reserves on its balance
sheet every year,” explained Polyakov.
The miner also said its projected reserves will reach 47 million carats
with its exploration of the Nyurbinskaya placer and upper levels of the Zarya
pipe.
Polyakov said that ALROSA would allocate most of its capital
expenses in 2012 to getting its underground mines to full production capacity.
When this is achieved, the miner will devote more resources to developing new
fields. The company’s expenses on diamond exploration totaled $133 million in
2011, and are projected to reach $178 million in 2012.
WHAT’S IN DEMAND
Polished sales have recovered slightly since the slowdown at
the end of 2011. “The market is much better than it was two months ago,” said
Valery Morozov, director general of Ruis Diamond. Traditionally, the demand in
Russia is strongest for small stones of less then .30 carats. Diamond dealers
say that although many buyers are asking for the best characteristics of D to E
color and IF to VVSI clarity, they usually end up purchasing F to I, VS1 to SI2 stones because their prices
are better.
Princesses are the second-most-wanted cut after rounds.
Dealers at the Junwex show in St. Petersburg in February said that among
certified diamonds, which can be bought by individual buyers, only round stones
of .50 carats and smaller were in demand. Under Russian law, individual consumers
are allowed to buy only certified diamonds, sealed in special boxes. Sales of
stones without certificates are restricted to jewelers and companies. “Only
jewelers ask for anything other than round cuts,” said Aleksandr Fedulov from
Zoloto Yakutii. He added that the most popular items at his booth were diamonds
that could be placed immediately into a mount.
The demand for colored diamonds is growing in Russia, but
its volume is so small, market participants struggle to even estimate it. Small
black diamonds are the only ones used in mass-market jewelry, but their
popularity peaked in the 1990s. Other popular colors are variations of yellow
and brown, but they are mostly used in premium jewelry because the average Russian
customer still doesn’t perceive diamonds as anything other than white. “Colored
diamond prices are rising, so people are interested in them as an investment,”
said Dmitry Kuntsev, director general of Smolensk Diamonds.
Most yellow diamonds are in K to Z colors and there are few
that can be called fancy. “It’s a big problem to find good fancy color diamonds
in Russia,” said Mikhail Epstein, director general of Mousson Atelier, an
exclusive St. Petersburg–based jewelry maker. Another problem is that “there’s
no classification ‘fancy color’ in the Russian diamond color system,” said Ararat
Evoyan, vice president of the Russian Diamond Manufacturers Association. He said
that work is underway to add this color grade, but the market is too small to
provide enough samples for comparison stones. A temporary solution is to use
Gemological Institute of America (GIA) certificates in combination with Russian
certificates.
JEWELRY SALES
Jewelers reported better-than-expected sales at the Junwex
show in St. Petersburg in February, with retailers purchasing items for spring
and for International Women’s Day, which is a big gift-giving holiday in
Russia. It was a pleasant surprise after modest New Year sales. (See show
coverage on page 144.)
“The demand for jewelry is growing,” said Hayk Aghabekian,
chief executive officer (CEO) of Gallery Sarkisian. “Jewelry items with big
colored stones are in great demand.” According to Olga Semina of St.
Petersburg–based Alexey Pomelnikov, “Most sales were in the midpriced
category.”
THE MARKETPLACE
Below are the prices for certified round diamonds sold at
Junwex. Price includes
up to $30 spent on certificates.
- .30 carat, G, VVS1: $1,500 a stone.
- .30 carat, K, VS2: $1,100 a stone.
- 1 carat, D, VS1: $15,000 a stone.
- 1 carat, D, SI1: $11,000 a stone.
- 1 carat, D, SI2: $9,300 a stone.
- 1 carat, E, SI1: $10,200 a stone.
- 1 carat, H, SI2:
$6,100 a stone.
Article from the Rapaport Magazine - March 2012. To subscribe click here.