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Russia
By Anastasia Serdyukova
The market is optimistic that at the least 2014 will not be a worse year than 2013, which saw both prices and demand fluctuating through the year, before ending on a downward trend. The hope is that the situation in 2014 will at least be stable. ALROSA, Russia’s largest diamond miner, ended 2013 with the same prices it was charging at the end of 2012. By May 2013, its rough prices were up by 6 percent, but the company had to lower them in the second part of the year due to falling demand. However, prices did remain stable and there were no further reductions in November and December. “We see the signs of market recovery,” said an ALROSA representative. “In December, for the first time in three years, buyers faced shortages in some categories of diamonds when we couldn’t supply extra volumes of diamonds due to high demand.”
ALROSA said demand is good along the full assortment of stones. Market participants say the rough in greatest demand is small stones of medium characteristics. The volume of stones rejected by sightholders remains within contract limits. The miner’s clients are allowed to refuse a certain percentage of the purchase volume specified in their contracts and the company let its buyers refuse more than the contracted allowance in August and September due to the stagnation at the market. Even so, most market participants say that the prices for ALROSA’s rough are still too high for the current polished prices. Even though sales were tough throughout 2013, ALROSA said it expects to meet its revenue targets. It also expects that rough prices will go up around 2 percent to 3 percent in 2014 and that demand will be stable though the year. It also expects its mining volumes to remain at 36 million carats in 2014. The company is planning to reduce its inventory by 1.2 million to 2 million carats, with most of this reduction taking place over 2014.
Nikolay Afanasiev, the head of sales at Kristall Smolensk, Russia’s largest manufacturer, said he expected the situation at the retail market to remain flat in 2014, with a slight downward movement. “The decline in prices is not yet over and polished prices will continue to experience pressure from rough prices,” he said, adding that rough prices are still around 5 percent too high. Yet an even larger problem for the industry is the shortage of financing. “As demand for polished is going down, banks’ trust in the industry is also falling,” Afanasiev said. At the moment, he explained, companies and dealers have very little stock, but they are carrying too much debt to the banks and too many receivables from companies and paying them off may become a problem. Kristall, which sells most of its production outside Russia, expected to close 2013 with approximately the same sales as it had in 2012, but Afanasiev said those numbers were not a surprise because the year was very difficult. He said that one way to fight the stagnation in sales is to offer more services to clients. Kristall Smolensk is working on an internet system that will allow dealers, jewelry companies and private buyers all around the world to order stones online. Already, the company is selling a small volume of stones online in Russia. “Most of the sales are based on specific orders from jewelry companies, even dealers are working based on the orders they have, rather than what they have in stock,” said Afanasiev. He also noted that customers increasingly want to know the manufacturer of the diamonds because they are afraid of synthetics.
Russian jewelers say 2013 was a tough year, with most companies reporting either a slight or no growth in sales compared to 2012. Most diamond jewelry is with stones of less than .30 carats. Nikita Nikolaev, commerce director of Yakutia-based Sakhayuvelir, said that people are also buying predominantly smaller certified diamonds. In 2012, companies said that people were looking for certified diamonds larger than .30 carats. Anatoly Korolev, director of Valery Gold, based in the south of Russia, said many customers still don’t understand the characteristics of diamonds, and are scared by the high price of stones with high characteristics. Many jewelers said that buyers are spending less on holiday presents. At the New Russian Style show held in Moscow in mid-December, most customers were looking for silver items or jewelry with small diamonds. Eugeniy Kustov, director of the Kostroma-based Kustov jewelry company, said that items with emeralds are very popular. He also noted that while Moscow prefers white and yellow gold, some regions still favor rose gold. At New Russian Style, many companies displayed items with emeralds, noting that these stones are more popular than the sapphires that were selling best in 2012. Larisa Ionkina from jewelry company Almaz explained that while sapphires were in fashion partially due to Kate Middleton’s engagement ring, emeralds and drop earrings were popular in 2013 because of a televised Russian soap opera, “The Magnificent Century,” which focuses on the life of a nineteenth-century Turkish harem.Article from the Rapaport Magazine - January 2014. To subscribe click here.
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