The diamond market should return to its normal traffic flow,
as long as there’s no drastic falloff in the Indian rupee rate, according to
Leonid Tolpezhnikov, chief market analyst for Russian diamond miner ALROSA. He
added that there are no objective reasons for either polished or rough prices
to continue falling. “The situation at the market is defined not by mining nor
by the final consumer, but by the problems that have arisen in the middle of
the diamond pipeline — that is, in India,” he said.
The rupee exchange rate was stable in March and April and
companies responded by increasing their rough purchases, which, in turn,
stimulated the movement of goods in the domestic market and improved the mood
of market participants in other countries. But, when the rupee rate fell in
May, India curbed rough imports and Indian companies revised their plans to
purchase rough.
“We estimate that the goods that were purchased by Indian
companies when the rupee was stronger in March and April would be polished and
reach the market in July and August,” said Tolpezhnikov, remarking that the
period from importing rough to exporting polished increased to four months for
Indian companies.
RETURN TO NORMAL
“These goods already are in stock and companies are
interested in selling them, so if there’s no collapse of the rupee, we can
expect a return to the normal turnover, in which money collected from selling
polished is spent on purchasing rough,” Tolpezhnikov said. He expects this
process of normalization to begin at the end of the third quarter of 2012.
Meanwhile, ALROSA estimates that the polished stock accumulated in the country
and due to be sold in the second half of this year amounts to approximately 11
million carats.
“India is the biggest democracy in the world, and there are
no grounds to suggest that they would destroy their own budget,” Tolpezhnikov
said. “There’s a limit below which the rupee can’t fall, and as soon as it
starts increasing, we will be the first to feel it.”
NO GROWTH
“There are no signs that the market will collapse,” said
Tolpezhnikov, adding that a fall in rough prices is also unlikely. “Some
observers say that the price of rough is overestimated and that prices will
fall. But if we look at 2010 and 2011, the volume of rough mining is
fundamentally not growing,” he said, noting that the major fields are becoming
increasingly difficult to mine as companies dig deeper. On the other hand, he
said that the end consumers do not feel that “the fall of stock exchange
indexes will affect their future income. We understand that negative
expectations have only started reaching the final consumer and retail, but
there are no reasons to suggest that the demand is over.”
All Russian participants in the diamond market are closely
watching the situation in India. “Indian companies usually overreact,” said
Nikolay Afanasiev, the head of sales of Kristall Smolensk, Russia’s biggest
manufacturer. “When the market is good, they drive up the rough prices for no
reason, but when the market is bad, they curb financing and sell rough off at
unrealistically low prices, which impacts the whole industry.” Afanasiev also
said that there has been little influence on the assortment that his company
sells. “There are still categories of polished that are difficult to find and
are in demand, such as pairs of princesses, as well as fancy shapes and
colors,” he said. “The demand from retail is there, but people are taking a
waiting position.”
OVERSUPPLY
The “wait and see” position and overall negative economic
expectations have the most adverse impact on companies that have borrowed
heavily. When sales are slow, they are stuck with stock and burdened by the
need to pay back their loans. “Both in Russia and in the world, there’s an
abundance of rough at the secondary market, but people don’t want to buy it,
even with a discount of 10 percent and more,” said Alex Popov, the head of the
Moscow Diamond Bourse. Yet, he said, the demand in Russian retail is strong. “Jewelry
sales in Russia are at the same level as in 2011,” said Flun Gumerov, the
director of Almaz-Holding, one of the country’s largest retailers and jewelry
manufacturers.
India’s impact on the Russian jewelry market has been
growing in recent years. “Indian jewelry used to represent around 10 percent of
imports, but its share is growing rapidly,” said Popov. He believes that India
may soon overtake Turkey and Hong Kong, the two largest importers of jewelry to
Russia. Gumerov said the competition from Indian imports is most felt in the
diamond jewelry segment.
The Marketplace
- ALROSA sold 39 diamonds, each weighing over 10.8 carats,
for more than $13.5 million at an auction in Moscow. The buyers were offered 51
stones with a total carat weight of more than 1,000 carats. The biggest gem was
79.65 carats. The stones were sold for prices 59 percent higher than the
opening prices.
- ALROSA offered 51 rough diamonds ranging from 11 carats up
to almost 80 carats at its first auction in New York City. Approximately
80 percent of the stones, varying from very fine to commercial quality, were sold.
Article from the Rapaport Magazine - August 2012. To subscribe click here.