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Russia
By Svetlana Shelest
In February, Russia’s largest rough producer ALROSA reported a 7 percent increase in its total sales of rough and polished over January, leading its Vice President of Sales Yury Okoemov to comment that the company now has “reasons to remain optimistic about demand behavior in all market segments.” Then in March, the miner announced its finalized annual report for 2016, citing a fourfold increase in its net profit, which grew to $2.3 billion from $554.2 million in 2015, and a 41 percent year-on-year growth in sales revenue, which totaled $5.5 billion in 2016. During 2016, the company effectively decreased its rough production by 2 percent year-on-year down to 37.4 million carats in an effort to reduce its stocks and help stabilize the market, while the miner’s overall sales of rough grew by 33 percent year-on-year, totaling 40 million carats. The 2016 sales of gem-quality rough grew even higher, showing a 46 percent year-on-year increase. ALROSA’s Chief Financial Officer Igor Kulichik said during a 2016 performance report conference call on March 16, 2017, “2016 was a year of active recovery in the diamond market following the decline in 2015.” According to Kulichik, the company effectively reduced its inventory by almost 3 million carats year-on-year down to 19 million carats valued at $1.8 billion while “delivering a record-high financial performance.”
March 2016 also saw a change in the mining giant’s leadership. After the resignation of Andrey Zharkov in his second year as president, the Russian government appointed Sergey Ivanov, a former senior vice president of the country’s largest bank Sberbank, to lead the state-controlled diamond miner for the next three years. The appointment was approved by a vote of the company’s supervisory board on March 13. The new president’s first comment during the 2016 performance report conference call was that he plans to “stick to the existing development strategy for the company, focusing on its main activity, i.e., diamond mining.” He confirmed ALROSA’s plan to increase production to 39.2 million carats in 2017 in line with the miner’s long-term goal to increase annual output to 41 million carats by 2021.
New developments in Russia’s cutting and polishing sector might follow from Deputy Prime Minister and Presidential Envoy to the Russian Far East Yuri Trutnev’s first-ever working visit to Vietnam and India from March 14 through 18. The visit marked a further step in the Russia-KGK joint project that aims to set up a cutting and polishing operation in Vladivostok that was announced in 2016. During the visit, Trutnev awarded India’s KGK Group, a polished and diamond jewelry manufacturer and De Beers sightholder, with an official certificate granting residency status in Vladivostok’s free port zone, which was set up by the government in 2016. The Eurasian Diamond Center (EDC), launched last year by ALROSA as a milestone in the government’s initiative to pursue creating a diamond bourse in Vladivostok, pledged to supply KGK’s investment project with logistical, insurance and other technical support. The new polishing facility in Russia is expected to be able to produce 9,000 carats of polished annually once production is launched, which is planned to happen within two years. The factory will create at least 500 jobs.
Trutnev’s dialogue with the Indian polishers made him aware of a number of regulatory measures that could benefit both the Russian-Indian cooperation in the polishing sector and Russia’s own domestic pipeline. The deputy prime minister said he will consider reducing the re-import tax that currently applies to all polished produced in India from the Russian rough when re-entering Russia. Softening the tax could potentially jump-start the Russian jewelry-making industry, which until now has been forced to buy small- and medium-sized polished abroad, mostly in India, as its production is not cost-effective for the domestic polishers. But most notably, Trutnev was impressed by the suggestion coming from the Indian polishers to create and promote the “Russian Cut” brand of diamonds worldwide through a joint effort with Russia. In a comment to Russia’s major news agency TASS, Trutnev said, “It gave me a feeling that somehow, whether intentionally or not, the entire regulatory framework in Russia is so flawed, as if on purpose harming the domestic cutting and polishing industry and jewelry manufacturing, literally sending them into exile to India, where entire cities have been built on our diamonds. This needs to be seriously addressed.” The deputy prime minister said he would set up a meeting looking into ways to streamline relevant tax and customs regulations in order to address the fact that “while the country runs the world’s major rough production business, it does not have the regulatory framework to make the most profit of it.”Article from the Rapaport Magazine - April 2017. To subscribe click here.
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