Russia Market Report

RAPAPORT... ALROSA announced that its factories and mines began returning to precrisis levels of production in September 2009, the most positive sign of a recovery seen so far. “The company’s main goal is to resume the volume of production,” said Andrey Polyakov, the company’s spokesperson. The state-owned miner, the major employer in Russia’s biggest diamond region of Yakutia, was promised $1.1 billion in aid from the Russian government. Most of the company’s production currently is being bought by Gokhran, the state treasury. ALROSA sold $199.5 million worth of rough to Russian and foreign companies in August 2009, which is close to the level of 2007 sales for the same month, according to Polyakov.

As the global crisis passes its one-year anniversary, many in the Russian diamond industry — from miners to manufacturers to jewelry makers — express hope that the market has moved through its lowest point and that business is on a road to recovery, although a bumpy one.

“The middle-class segment that jewelers count on the most for sales of items ranging from $3,000 to $15,000 fell the most through the crisis, while sales of luxury jewelry occurred at the same rate as before the crisis,” said Dmitry Gavrilenko, head of the sales department of Estet, one of the big jewelry makers in Russia. He had just returned from Junwex Moscow, the annual trade show where contracts are signed for autumn and the upcoming holiday season. Most show participants reported that although the sales at this show were better than at any previous show in 2009, they are still below — sometimes by half — the same show in 2008.

“Dealers and shop owners have run out of stock, so they’ve come to buy, hoping we have passed the bottom of the crisis,” said Maksim Strezhnev, director general of Yekaterinburg-based Rifesta. “Some regular clients say they’ll be ready to buy in October, if not now,” said Sergey Tolkaev, who is in charge of Russian sales at Kristall Smolensk, the country’s largest manufacturer.

Tricks of the Trade
Many jewelers have dubbed their new collections “anticrisis” to reflect the fact that the items look grand, but cost less. Strezhnev said Rifesta has shifted some designs from one big gem to three smaller ones, or designed settings that enlarged the look of the stones. St. Petersburg–based Sadko presented a collection in which each frame contained a center diamond not larger than 1/2 carat, tightly surrounded by smaller gems. The design, the company said, gave an illusion of a 3-carat to 5-carat gem from a distance. Classical items with round and princess cut diamonds dominated exhibitors’ displays. “Trendy diamond jewelry doesn’t sell well as people would rather buy a trendy bijouterie and spend their money on a classic diamond ring,” said Strezhnev.

Domestic Diamond Sales
Russian customers want diamonds of no less than H and SI1, with dealers saying SI3 and below are not even being discussed. The most popular sizes are 1/3 to 1/2 carats among wholesalers. Fancy colored diamonds — which are only yellow, brown and black in Russia — were selling very well as they are cheaper than white gems.

Individual buyers are showing great interest in certified stones, demanding even higher characteristics than wholesalers. “Jewelry shops have started buying certified stones because customers ask for them,” said Tolkaev. He said more people are becoming educated about diamonds and they are being more specific about the characteristics they want. He said Kristall Smolensk is launching a new option where people choose a stone and a mount online, place the order online and have the finished piece sent to them. Zoloto Yakutii, a jewelry maker and manufacturer, offered the same option of choosing a stone and a mount at the Junwex trade show. “Our jeweler at the stall worked without a break during the first days of the show as people bought certified gems that they wanted in a mount straight away,” said Aleksandr Kazakov, the company’s head of sales.

However, the after-effects of the yearlong stagnation are strongly felt. “Finding small gems of good quality and well cut is difficult as Indian and Chinese products often do not meet the requirements,” said Evgeny Alexandrov, the director of Barnaul-based Alexandrov&K, which deals in custom-made jewelry. In the past two months, some manufacturers have resumed production after being closed since the beginning of 2009. However, many said they are experiencing problems with rough because ALROSA resumed sales only in August and most of its stones are exported or sold to large manufacturers, which leaves smaller companies with practically nothing.

The Marketplace

• Gokhran, Russia’s state treasury, sold more than 3,000 carats of rough diamonds worth $12.8 million at its September auction. Only 87 lots out of 230 offered were sold, according to Prime-Tass news agency. The sales were three times more than at the previous auction in spring 2009, yet half as much as before the crisis, when auctions were held every two months. The number of participants also fell sharply, with only two or three companies actually buying, according to market insiders.
• Russia exported 2.7 million carats worth $29.8 million in the second quarter of 2009. This is 20 times more carats than in the first quarter. The biggest buyer was Belgium, which didn’t buy anything in the first quarter.
• Russia imported 40,900 carats worth $30 million in the second quarter of 2009, almost the same volume as it imported in the first quarter.

Article from the Rapaport Magazine - October 2009. To subscribe click here.