Russia’s largest diamond producer ALROSA says the demand for
rough is steadily high due to more active jewelry and polished markets, which
the company estimates have grown between 8 percent and 12 percent since the
beginning of the year. “The situation is not bad and we are likely to meet our
sales target for the first quarter of 2012,” said Andrey Polyakov, the
company’s representative. ALROSA was planning to sell $1.123 billion worth of
rough and polished in the first three months of this year. Its sales for
January and February were $694 million, a 21 percent increase against the same
two months in 2011.
ALROSA also has resumed selling at spot market, with the
first tender held in Antwerp, Belgium. In Moscow, the company held three
auctions between the end of February and early March for stones larger than
10.8 carats. In the first auction, the company sold 362 of 390 offered lots
containing 15,000 carats for $46.3 million, with the sale prices exceeding
presale estimates by 90 percent. In the second and third auctions, ALROSA sold
104 out of 108 stones weighing 2,000 carats for $10.3 million and 106 out of
120 stones weighing 1,900 carats for $10.5 million. In those auctions, the sale
prices exceeded presale estimates by more than 40 percent.
In other developments, India asked Russia to increase its
rough diamond supply and to push ALROSA to open long-term supply contracts to
more Indian applicants. The request came during a political meeting in New
Delhi in late March. Both sides, noting that trade volume between them is far
below its potential, agreed to work toward a substantial increase.
REVENUES
ALROSA’s revenue for all of 2011 was $4.03 billion,
approximately 20 percent higher than in 2010. The figures are calculated
according to Russian accounting standards. Net profit was $1.01 billion, more
than three times higher than in 2010, which reflects the fact that the
company’s costs and spending remained at approximately the same level as in
2010. The cost of diamond mining in 2011 is reported as $860 million, almost
the same as the previous year, and $14 million was spent on geological
exploration. Around 40 percent of its production was sold in Russia; the rest
was sold abroad, primarily in Belgium.
The ALROSA Supervisory Board endorsed the idea of selling 14
percent of the company’s shares in an initial public offering (IPO), with the
Russian Federation and the Yakutian government — the two largest shareholders —
selling 7 percent each. The board stressed the importance of retaining state
control of ALROSA — with the Russian Federation and the Republic of Yakutia
each retaining a stake of 25 percent plus one share — to avoid having to buy
back $1 billion worth of ten-year Eurobonds issued in 2010.
POLISHED MARKET SHOW
Russian manufacturers characterize the polished market as
close to stagnant, but still moving. “There’s a tendency for a slight growth of
the market,” said Nikolay Afanasiev, the head of sales of Kristall Smolensk,
Russia’s largest manufacturer. He noted that the market has been improving
gradually since the end of November and his company is meeting its targets for
the first quarter of 2012. Although there’s a demand for polished, the problem
is that buyers are showing great resistance to the current prices. Rajesh
Gandhi, director general of Choron Diamond, said some categories are not
selling, even with a 30 percent discount from the prices of two or three months
ago. But most manufacturers are keeping their prices at the same level as at
the beginning of 2012.
Afanasiev said that demand for piqué diamonds of 30 points
to 90 points is strong, and 1-carat SI stones also are well positioned for
growth. Aleksandr Maksimov, director of Yakutian Diamond Company, said rough of
high quality is so expensive that polishing diamonds of E, VVS1 characteristics
yields no profit.
Manufacturers say the challenge is to find their own
production formula to build in a profit margin. “It’s not profitable just to polish
and sell diamonds; it’s better to use gems in your own jewelry making,”
Maksimov said. Yet, jewelry makers say that finding good polished at realistic
prices still is a challenge. “There’s a great variety of stones of average
characteristics in the market, but there aren’t many good gems at affordable
prices,” said Oleg Ketlerov, diamond department manager of jewelry maker
Vangold.
WOMAN’S DAY CELEBRATED
Certified diamonds sold well, along with jewelry generally,
when the country bought gifts to celebrate International Woman’s Day on March
8. “Diamonds between .30 carats and .90 carats with medium characteristics were
the most popular,” said Marina Efimova from Brilliantovaya Yakutia, a jewelry
maker associated with state-owned manufacturer Komdragmet. She noted that sales
of medium-priced jewelry were up for the holiday. Yet, it’s still jewelry
costing less than $700 that accounts for most jewelry sales. Maksimov said that
rings and earrings in this price range — with diamonds of .15 carat — were
selling like hot cakes. Ketlerov said demand is high for jewelry in red gold.
The Marketplace
- Russia’s diamond production rose 1 percent year on year in
2011 to 35.14 million carats and it rose 12 percent in value terms to $2.675
billion. ALROSA’s contribution was 34.438 million carats.
- Russian diamond exports fell by 20 percent in 2011 to
32.347 million carats but the value of exported diamonds increased by 37
percent to $3.811 billion compared to 2010 finals.
- Russia’s state treasury sold 525 lots of rough diamonds
worth $12.058 million to 30 companies in March. The initial offer was 556 lots
worth $12.595 million. Each lot represented a single stone of over 10.8 carats.
- Best-selling polished diamonds are .30 carats to .50
carats in G, VS1-VS2.
Article from the Rapaport Magazine - April 2012. To subscribe click here.