Cooperation is Name of the Game

RAPAPORT... While Russia owns almost a quarter of the world’s diamond deposits and India is the world’s largest rough diamond importer, their business dealings have been low scale so far. However, recently, both have begun moving toward more active cooperation.

This year, Indian companies have started buying uncut stones directly from Russia, following a relaxation in Russia’s export rules. Now they are ordering approximately 10 percent of their overall imports from Russia. However, experts say the total amount of Russian stones being bought by India is not strikingly different from several years ago; the difference is that then India was buying the stones mostly through De Beers.

Indian companies are becoming more active in getting access to Russia’s diamonds, as well as Russian customers. They have found that starting a company in Russia gives them better access to rough materials.

“The market has changed, it has become more open, there are many tenders to compete for,” said Rajesh Gandhi, the head of Choron Diamond LTD, a Yakutia-based cutting-polishing company with 100 percent foreign capital.

Russian cutters are not happy with the increased competition for the resources. “We buy diamonds not only inside the country, but also abroad, and Indian companies make for heavy competition, as they receive financial support from their government,” said Nikolai Zhuravlev, of government-owned Kristall Smolensk, Russia’s biggest diamond manufacturer.

India and Russia don’t compete when it comes to final product. The countries occupy different niches. “India is cutting small diamonds, producing what is not profitable in Russia,” said Ararat Evoyan, vice president of Russia’s Association of Diamond Producers. Indian companies coming to work in Russia are trying to move into the more high-end segment.

Greater Quotas for Kristall

It is rumored that the Russian government may increase the rough diamond supply quota from ALROSA, the country’s main diamond miner, to Kristall. The size of the quota is yet to be discussed and settled. It has been reported Kristall expects the move to almost double its turnover from $13 billion. Currently, the company receives up to 750 thousand carats from different sources.

“We would like to receive this amount only from ALROSA. We are capable of doubling production,” says Zhuravlev.

In 2006, ALROSA supplied $232. 2 million worth of diamonds to Kristall, its largest client in Russia, according to Interfax news agency. ALROSA is now creating a new supply strategy based on a system of long-term contracts with big clients. “This suggests mutual obligations on behalf of ALROSA and its clients and excludes various intermediaries from the buyer-seller relations,” an ALROSA representative told Interfax.

“Kristall is not looking for any price preferences and is ready to buy product at the market price,” Zhuravlev said.

Moscow’s Jewelry Shows

Russian jewelry makers are preparing for the new sales season. More than 300 companies exhibited at Junwex Wholesale Jewellery Trade Fair shows in Moscow in early September. More than half of the participants preferred showing their goods united in large thematic collections rather than putting out separate pieces of jewelry. Most of the collections were created especially for the shows.

“There has been more high-end product than in previous years,” says Vladimir Zakharov, deputy director of Russia’s Jewelers Guild. Participants say that pieces priced over $800 had the biggest demand. More expensive merchandise went to Moscow and Central Russia, while clients from Siberia and the Far East preferred less expensive pieces.

Jewelry with diamonds represented around 40 percent of all sales. Participants note demand has increased for goods with one or two big diamonds, compared to previous years, when scattered diamonds were more popular. Colored diamonds, especially yellow stones, attracted more customers compared to previous years.

An increased amount of merchandise is produced in line with European design. “People are asking for more delicate and fashionable things, and not just kilograms of gold,” said Zakharov. “Although the main trend in design is European, many consumers still prefer traditional Russian design,” said Vladimir Stankevich from ADAMAS.

The show’s participants said that a large amount of diamond jewelry was bought as an investment.

Armenia to Cut Russian Diamonds

Armenian companies will start cutting Russian diamonds by the end of the year, Gagik Abramyan, the chair of the International Association of Armenian Jewelers, told a number of news outlets. An agreement signed this past summer implied the possibility of creating a joint enterprise to supply Armenian companies with diamonds that can’t be cut profitably within Russia.


The Marketplace
 
• ALROSA’s 24th international rough diamond auction sold all lots offered – 131 lots consisting of 17,000 carats – for $38.4 million. The largest diamond weighed 229.11 carats and 12 were larger than 50 carats.
• Jewelry consumption in Russia increased 27 percent in the second quarter of 2007 compared to the same period in 2006, the World Gold Council reported.

Article from the Rapaport Magazine - October 2007. To subscribe click here.