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Russia
By Anastasia Serdyukova
Russia’s largest diamond miner ALROSA expects that demand and supply of rough will be in balance for the first quarter of 2013 and anticipates modest growth afterward. The company is planning for mining volumes to remain at the same level as in 2012, around 34.5 million carats. About 10 million carats will come from underground mines, which are taking a bigger share of the company’s output. ALROSA’s capital expenses for 2013 will be around $1.11 billion,
which is almost the same as in 2012. More than half of that amount will
be spent on the construction of underground mines and the support of the operating ones. The company is running four underground mines currently, of which one mine, Udachny, would require most of the investment,
around $207 million. The company also intends to finalize its purchase of 51 percent of Nizhne-Lenskoe, a Yakutian miner with deposits of 26 million carats. Nizhne-Lenskoe has alluvial deposits rich in colored stones. ALROSA
said it had considered buying the diamond deposits of BHP Billiton and
Rio Tinto when the two companies announced recently they were going
out of the diamond business, but decided against it because the deposits would require the construction of underground mines in 10 years to
20 years. ALROSA said that despite the ups and downs of rough prices during 2012, at the end of the year, the company was at the same level as in the beginning of 2011. In addition, the company finished 2012 with almost
the same figures it had at the end of 2011.
The current rough prices leave little profit margin for manufacturers, according to Nikolay Afanasiev, sales director of Kristall Smolensk, the country’s largest manufacturer. “Either the prices of rough should go
down, or the prices of polished should rise,” he said. He estimated that rough prices fell around 16 percent to 20 percent and polished prices dropped by 8 percent to 12 percent from the peak prices of 2012. The prices stopped falling in December. Afanasiev said the company even
raised prices slightly at the end of 2012 for some categories of diamonds. The other acute problem for manufacturers is the lack of liquidity in the market. Afanasiev said some sales that in the past would be paid in cash straightaway are being structured with delayed payments. Despite the difficult situation in the market, the company managed to finish 2012
with a small net profit and sales of around $450 million, slightly less than
in 2011. There’s a silver lining to the situation, although a very thin lining.
The demand for polished is recovering slightly because companies are running out of stock after the holiday season, according to Afanasiev. The diamonds that see the most demand are traditionally .7 carats and less with medium characteristics. Kalpesh Shah from Moscow-based manufacturer Shreya Core said polished sales have intensified because jewelry companies were getting ready for the big Junwex St. Petersburg show in February and the traditional gift-giving holiday, International Women’s Day, on March 8, which comes second in the volume of presents only after New Year’s.
Year-end holiday sales went well, according to jewelers interviewed
by Rapaport Magazine. However, the overall mood is that Russians’ purchasing capacity is down when it comes to jewelry. Most of the purchases for the New Year holiday were in the price range of $1,000
to $2,000. “The demand for diamond jewelry has increased,” said Flun Gumerov, director of Almaz-Holding. Ilya Adamsky from Moscow Jewellery Factory (MJF) said that demand is growing for diamond jewelry costing $350 and less. The sales of expensive jewelry were down through 2012 and over the New Year holiday. Isabella Soltys, director of Sakha Taas, which mostly sells jewelry priced from $3,000 and up, said that the average sale in the shops has fallen because people prefer buying less expensive items. Adamsky said sales to private buyers of loose diamonds 1.5 carats and larger fell in the second half of 2012 compared to previous years, while sales of smaller diamonds remained steady. The other thing that might
have affected expensive jewelry sales in Russia was the long holiday in the beginning of January, when people go on two-week- to three-week-long trips, thus postponing any purchases.
The overall results for 2012 are considered positive by many jewelers. Some report an increase in sales by 20 percent to 30 percent, but many attribute the increase more to the expansion of shops and higher prices. Adamsky said that the shops working under the MJF franchise reported a growth in sales, even though those shops are located in small towns where most of the population doesn’t earn much. “I don’t see any evidence that jewelry sales are going down, but the feeling is there,” Adamsky said.Article from the Rapaport Magazine - February 2013. To subscribe click here.
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