Just
two months after Alrosa confirmed it was not changing its 39.3 million-carat
production plan for 2017, the Russian miner’s newly announced 2018 projections
are nearly 7% lower. This is quite a step away from the company’s long-term
strategy of driving output to at least 40 million carats by 2020, as it
announced three years ago.
Alrosa intends to produce
36.6 million carats over the next year and go up another one million carats by
the end of 2020, company president Sergey Ivanov said in a December press
statement, adding that the miner wasn’t expecting to reach the 39-million-carat
level again before 2022.
In the next two years, Alrosa
plans to focus more on sales, he said. “Our company has considerable inventory
of rough, and we plan to put it on sale in 2018 and 2019 in order to relieve
the negative impact on production we have sustained due to the Mir [mine
flooding] accident.”
Regarding the overall
forecast for the coming year, Alrosa chief financial officer Alexey
Philippovskiy told
Rapaport Magazine the company was expecting the market to
retain the balance it had achieved thanks to stable global rough production and
a slight rise in diamond jewelry demand. Alrosa is also planning to sell more
high-quality rough than it did in 2017, which will result in higher average
prices, he said.
Polishers
skeptical after harsh 2017
Meanwhile,
Maxim Shkadov — general director of Kristall Smolensk, Russia’s largest polisher
— declared 2017 the most difficult year in history for the country’s
manufacturing industry.
“It is too early to speak of
stability, as only the outcome of the holiday sales that usually generate about
50% of the annual sales will give us a better idea of what to expect from the
market in 2018,” he said in an end-of-year press conference. “But it is clear
that the market is oversaturated, we’re dealing with an overproduction crisis,
and the competition is fierce with the Indian polishers.”
Kristall Smolensk is largely
concerned about the growing difference between rough and polished prices, he
continued. “We estimate that in 2017, this difference reached 7.5%. In the
polishing industry, where the profit margin stays within the 12% to 15% range,
this puts us in survival mode.”
Discussing 2017 market
trends, Shkadov said sales had slumped for D- to F-color and IF- to VVS-clarity
diamonds across all weight categories. The year also saw an unprecedented 20%
slump in sales of 0.50-carat diamonds and a 16% decline in sales of 0.70-carat
diamonds, while the demand for 1-carat diamonds went down by 6%. Based on this,
Kristall Smolensk expects G to J and VS to SI diamonds to continue trending in
2018.
Jewelers
fighting sales crisis
Meanwhile,
Eduard Utkin, CEO of the Russian Jewelers Guild Association, said the country’s
jewelry trade had hit a record low.
“There was some growth in the
first half of the year, when sales picked up by 3% to 4%, and jewelry
production grew by about 15% to 18%. Yet both have been slumping since July,”
said Utkin, whose group is Russia’s leading umbrella organization for jewelry
manufacturers and dealers. “For comparison, in 2015, Russia exported $178
million worth of jewelry, then it exported 34% less in 2016, and our estimate
for 2017 is just $80 million.”
Yet jewelers are aiming to
increase exports up to $1 billion annually. In addition to discussing support
measures with the government, the association has launched the JUNWEX Premium
high-end jewelry show and the international Carl Fabergé Awards contest,
according to organization chairman Gagik Gevorkyan. The hope is that these
initiatives will stimulate demand and bolster talented Russian jewelry-makers.
Article from the Rapaport Magazine - January 2018. To subscribe click here.