The movement of goods along the diamond pipeline has intensified. Market participants sound more optimistic about the sales of rough and jewelry, but polished business is still very slow. “It can’t be said that the market has recovered, but the situation has become much better,” said Leonid Tolpezhnikov, chief analyst of the Russian diamond miner ALROSA. He said that many of the company’s clients, who cut back on their purchases of rough in previous months, are now taking all the volume allocated to them by their contracts.
The improvement of the diamond market is attributed to the stabilization of the rupee exchange rate and the resumption of polishing activity by many Indian companies. “Both ALROSA and De Beers reduced their rough prices in the past three months. This measure, along with new credit lines that Indian companies have received, improved the demand for rough,” said Valery Morozov, the director general of Ruis Diamonds, part of Leviev Group.
ALROSA anticipates rough and polished diamond sales in 2012 to reach $4.59 billion, about 3 percent higher than 2011. The projections were contained in the updated consolidated budget approved by the miner’s supervisory board October 26. Rough diamond production for the year is expected to fall slightly to 34.4 million carats compared with 34. 6 million carats in 2011. Net profit is expected to reach $1.2 billion, a very slight improvement from the board’s initial expectations, but an increase of more than 16 percent from 2011.
In the same updated budget projections, ALROSA’s supervisory board foresees the average annual price for rough diamonds increasing 1 percent year on year, down from earlier projections of a 4 percent hike. The miner noted that it considers such a moderate increase to be a stabilizing factor contributing to better market prospects in 2013.
In the first six months of 2012, the prices of gem-quality items went up 11 percent on a year-on-year basis, reaching an average of $195 per carat. The volume of sales was flat, however. Prices increased 77 percent in the non-gem-quality diamond sector, reaching $10 per carat. The latter contributed $56 million, a 40 percent hike compared to 2011, to the company’s revenue.
Less-expensive goods of low color and quality characteristics are the movers of the market at the moment. “When we say that the market has recovered, the reason behind it is the increase in demand for piqué diamonds, which creates a certain demand for rough,” said Tolpezhnikov. He said that the increased popularity of piqué is, in turn, reflected in the lower value of global rough sales.
“The value of exported goods from Belgium has fallen, but this is due only to the fact that the market has switched to selling different rough, but not less quantity,” Tolpezhnikov said. He said that ALROSA’s sales also are influenced by the volume shifts in the share of each mine. The shares of Mir and Udachny, for example, where there are more clear and better-quality items, are falling as they go underground, and the share of stones from other mines, such as Jubilee and Nurba, is increasing. “This, of course, affects the price of lots that we are selling.”
“Piqué diamonds are the only ones that are selling at the moment,” said Morozov. Other stones that are in demand are different types of fancy colors. Rounds are the most popular shape, but princesses also are popular. In Russia, stones of G to H and VVS2 to VS1 traditionally enjoy greatest demand. Big, expensive stones have the lowest demand at the moment, although some are still being sold.
“We sold a small amount of high-quality stones and the rest we used in jewelry production of our own. The biggest ones we put in the bank to wait for better times when the prices return to more profitable levels,” said Aleksander Maksimov, director general of Yakutia Diamond Company.
Russian manufacturers expressed disappointment with the current pace of sales. “The problem is not that the prices went down, but that demand is weak,” said Morozov. Nikolay Afanasiev of Kristall Smolensk said demand has not improved since September, and, although it is stronger in the U.S., sales in Asia are weak.
Russian jewelers said sales were slightly up in October, compared to September, in anticipation of the holiday season. “Most jewelry items sold are in the price range of $200 to $300, and the size of the gems rarely goes above 1 carat,” said Maksimov, adding that his company is preparing collections mostly in this range for the New Year holidays. When it comes to items priced at $2,000 and more, the companies producing them are betting on old clients coming back. “The walk-in impulse purchases have died out,” said Aleksey Trushin from Diamond Gallery. “Maybe they still happen in shopping malls, where less expensive goods are sold, but not when it comes to stores selling more expensive items.”
Article from the Rapaport Magazine - November 2012. To subscribe click here.