The Russian government is planning to sell off its entire
share of Russia’s largest diamond miner ALROSA within the state privatization
plan. Yet the move is facing opposition in Yakutia, the Russian republic where
most of ALROSA’s mines are located.
The Russian government owns 50.9 percent of ALROSA’s shares,
Yakutia owns 32 percent and eight municipalities of the republic jointly own 8
percent, while the remaining shares belong to various minority investors. When
announcing the initiative, First Deputy Prime Minister Igor Shuvalov said the
government will “co-ordinate the sales with the region” and “the money received
from privatization will all or partly be allocated for developing the
infrastructure of Yakutia.” He said such investment would help develop new
diamond fields and the Yakutian treasury would receive more revenue from the
mines than it does now because ALROSA pays few dividends.
The Yakutian parliament asked Russian President Vladimir
Putin to reconsider the plan. The republic fears that a change in ALROSA
ownership will lead to a reduction in financial support for the region’s social
programs, which would place a bigger burden on the Yakutian budget. The previous
proposal to sell 14 percent of state-owned shares of the company was supported
by ALROSA’s supervisory board. “It’s difficult to say what would be more
profitable for the government,” said Sergey Filchenkov, analyst from IFC
Metropol “It’s unlikely that ALROSA will be able to drop its social program
obligations any time soon.”
KRISTALL SMOLENSK TENDER
Russia’s largest diamond manufacturer Kristall Smolensk sold
145.6 carats worth $2.2 million in its latest tender for polished stones. The
company sold 41 out of 55 lots. “We are satisfied with the results, taking into
consideration the overall market,” said the company’s head of sales Nikolay
Afanasiev. He explained that the company didn’t set its own presale minimum
price, which it had in its first polished auction. That resulted in customers
prepared to offer prices below the cutoff not getting the goods. The advantage
of not having minimum prices “is that almost every stone can be sold, which is
not the case when there’s a minimum price,” he said, noting that the overall
revenue from this second auction was good.
POLISHED SALES
The usual summer slowdown of activity for Russian
manufacturers is complicated by uncertainty over the global financial turmoil.
“The situation is tense at the moment, but not to the extent that someone would
dump their stocks,” said Afanasiev.
Manufacturers say that the pressure from high rough prices
is felt more when sales slow down. “The rough prices have reached a critical
point, with rough sometimes more expensive than polished,” said Irakly Aneli,
director general of Nevsky Diamond. “Making jewelry is sometimes the best way
to get profit.” He also said that the lack of dealers with big and diverse
stocks had become an additional hurdle for jewelers because it means that
finding needed gems is more difficult and therefore more expensive.
JEWELRY SALES SLOWING
Diamond jewelry sales slowed down even more than other
jewelry categories and most sales were of less expensive jewelry with diamonds
around .10 carats. “Most diamond items bought by wholesalers were around $130,
which would be $250 retail,” said Julia Bacherikova, marketing specialist for
Kostroma-based Master Brilliant. Sales for items with semiprecious stones were
high, with London blue topaz turning out to be the most popular stone. Almost
every company at New Russian Style show in June presented a collection with
this gem.
“In the mass market, people have bought many rings without
stones in the past three years, so now they’d rather buy one with a gem,”
explained Fyodor Poludenny from Estet, one of Russia’s largest jewelry makers.
Sales of wedding rings jumped with the arrival of summer, the traditional
wedding season. More wedding bands are made with small diamonds for both men
and women. “The tradition of giving an engagement ring with a diamond is not so
well established in Russia that it makes a significant contribution to jewelry
sales,” said Irina Anisimova, manager of Tiamo, a company specializing in
wedding rings.
PRODUCTION VOLUME INCREASING
ALROSA is planning to increase its production volume to 38
million to 40 million carats by 2021 from the current annual level of 34
million carats. The added production will be supplied by its underground mines
and by the fields of its subsidiary Severalmaz, in the northwest region of the
country, reaching its full production capacity. The share of underground
production will increase from 27.2 percent to over 60 percent. The company
expects its deposits to reach 1,190 million carats in ten years, which is 451
million carats more than current volume.
THE MARKETPLACE
Average retail prices of polished round certified stones
sold at the New Russian Style show are as follows:
- .20 carat, G, VS1: $460.
- .20 carat, F, VVS2: $620.
- .34 carat, G, VS1: $1,650.
- .36 carat, F, VS1: $1,920.
- .51 carat, G, VVS1: $4,315.
- .61 carat, G, VVS1: $5,150.
- .90 carat, G, VS1: $12,172.
- 1.08 carat, G, VS2: $15,700.
- 1.52 carat, G, VS2: $30,000.
- 1.52 carat, F, VVS2: $43,000.
- 1.02 carat pear-shaped, G,VS1: $11,700.
Article from the Rapaport Magazine - July 2012. To subscribe click here.