Privatization May Come to ALROSA

The Russian government owns 50.9 percent of ALROSA’s shares, Yakutia owns 32 percent and eight municipalities of the republic jointly own 8 percent, while the remaining shares belong to various minority investors. When announcing the initiative, First Deputy Prime Minister Igor Shuvalov said the government will “co-ordinate the sales with the region” and “the money received from privatization will all or partly be allocated for developing the infrastructure of Yakutia.” He said such investment would help develop new diamond fields and the Yakutian treasury would receive more revenue from the mines than it does now because ALROSA pays few dividends.

The Yakutian parliament asked Russian President Vladimir Putin to reconsider the plan. The republic fears that a change in ALROSA ownership will lead to a reduction in financial support for the region’s social programs, which would place a bigger burden on the Yakutian budget. The previous proposal to sell 14 percent of state-owned shares of the company was supported by ALROSA’s supervisory board. “It’s difficult to say what would be more profitable for the government,” said Sergey Filchenkov, analyst from IFC Metropol “It’s unlikely that ALROSA will be able to drop its social program obligations any time soon.”

KRISTALL SMOLENSK TENDER

Russia’s largest diamond manufacturer Kristall Smolensk sold 145.6 carats worth $2.2 million in its latest tender for polished stones. The company sold 41 out of 55 lots. “We are satisfied with the results, taking into consideration the overall market,” said the company’s head of sales Nikolay Afanasiev. He explained that the company didn’t set its own presale minimum price, which it had in its first polished auction. That resulted in customers prepared to offer prices below the cutoff not getting the goods. The advantage of not having minimum prices “is that almost every stone can be sold, which is not the case when there’s a minimum price,” he said, noting that the overall revenue from this second auction was good.

POLISHED SALES

The usual summer slowdown of activity for Russian manufacturers is complicated by uncertainty over the global financial turmoil. “The situation is tense at the moment, but not to the extent that someone would dump their stocks,” said Afanasiev.

Manufacturers say that the pressure from high rough prices is felt more when sales slow down. “The rough prices have reached a critical point, with rough sometimes more expensive than polished,” said Irakly Aneli, director general of Nevsky Diamond. “Making jewelry is sometimes the best way to get profit.” He also said that the lack of dealers with big and diverse stocks had become an additional hurdle for jewelers because it means that finding needed gems is more difficult and therefore more expensive.

JEWELRY SALES SLOWING

Diamond jewelry sales slowed down even more than other jewelry categories and most sales were of less expensive jewelry with diamonds around .10 carats. “Most diamond items bought by wholesalers were around $130, which would be $250 retail,” said Julia Bacherikova, marketing specialist for Kostroma-based Master Brilliant. Sales for items with semiprecious stones were high, with London blue topaz turning out to be the most popular stone. Almost every company at New Russian Style show in June presented a collection with this gem.

“In the mass market, people have bought many rings without stones in the past three years, so now they’d rather buy one with a gem,” explained Fyodor Poludenny from Estet, one of Russia’s largest jewelry makers. Sales of wedding rings jumped with the arrival of summer, the traditional wedding season. More wedding bands are made with small diamonds for both men and women. “The tradition of giving an engagement ring with a diamond is not so well established in Russia that it makes a significant contribution to jewelry sales,” said Irina Anisimova, manager of Tiamo, a company specializing in wedding rings.

PRODUCTION VOLUME INCREASING

ALROSA is planning to increase its production volume to 38 million to 40 million carats by 2021 from the current annual level of 34 million carats. The added production will be supplied by its underground mines and by the fields of its subsidiary Severalmaz, in the northwest region of the country, reaching its full production capacity. The share of underground production will increase from 27.2 percent to over 60 percent. The company expects its deposits to reach 1,190 million carats in ten years, which is 451 million carats more than current volume.

THE MARKETPLACE

Average retail prices of polished round certified stones sold at the New Russian Style show are as follows:

• .20 carat, G, VS1: $460.
• .20 carat, F, VVS2: $620.
• .34 carat, G, VS1: $1,650.
• .36 carat, F, VS1: $1,920.
• .51 carat, G, VVS1: $4,315.
• .61 carat, G, VVS1: $5,150.
• .90 carat, G, VS1: $12,172.
• 1.08 carat, G, VS2: $15,700.
• 1.52 carat, G, VS2: $30,000.
• 1.52 carat, F, VVS2: $43,000.
• 1.02 carat pear-shaped, G,VS1: $11,700.

Article from the Rapaport Magazine - July 2012. To subscribe click here.