RAPAPORT... ALROSA,
Russia’s largest diamond miner, is looking east to diversify the distribution of its supplies. During his trip to India in mid-March, ALROSA President Fyodor Andreev told news agencies there that the miner was aiming to sell as much as $1 billion worth of rough to the country in 2010, which would constitute one-third of its planned output. ALROSA sold $550 million worth of diamonds to 47 Indian companies in 2009, which represented half its overall sales. That volume was twice the amount sold to the country in 2008. Andrey Polyakov, the company’s representative, said ALROSA is interested in cooperating with India because the country polishes large volumes of rough, is a dominant manufacturer of small gems and consumes an increasing amount of diamond jewelry domestically.
In March, the Russian miner signed three-year contracts to supply $490 million worth of rough to three large Indian manufacturers — Diamond India Ltd., Ratilal Becharlal & Sons and Rosy Blue. In a new type of agreement for ALROSA, this contract allows the partners to review the prices every three months. Polyakov, who said the company was working toward signing similar contracts with China, another burgeoning diamond manufacturer and consumer in Asia, noted that “These moves are aimed at hedging the company’s sales.”
Fear of Rough Hike
The demand for rough has been growing since the beginning of the year, driving up prices. “Rough prices have almost reached precrisis levels,” said Nikolay Afanasiev, sales and marketing director of Kristall Smolensk, Russia’s largest manufacturer. “And this is partly a positive sign because when the prices were falling, the instability made the situation much worse.”
However, both diamond producers and manufacturers are concerned about what will happen when the prices hit their peak. “There are fears of prices retracing downward,” said Polyakov. That would hit hardest at small manufacturers, who have said the high prices deplete their already-small profit margins as they are struggling to survive. Both manufacturers and dealers are trying to hedge their risks against a possible fall in prices by not accumulating large inventories. “When it comes to big stones, we polish gems based on special orders alone,” said David Natanov from Diamond Panorama, a new Moscow-based company, which recently united several diamond and jewelry manufacturers under one brand.
First Rough Auction of 2010
Gokhran, the Russian state treasury, sold about 6,500 carats of diamonds worth $7.9 million in its first auction of the year in March. It offered 721 stones in 166 lots, weighing 11,500 carats, and sold 95 lots. The treasury stockpiled record amounts of diamonds throughout the global economic crisis by buying up ALROSA production. It intends to hold two more auctions in 2010 as part of its plan to sell almost $500 million worth of diamonds from its inventory. The $1 billion in gems Gokhran bought from ALROSA in 2009 will not hit the market until 2012, as the stones need to be assembled into lots and registered.
ALROSA Outproduces De Beers
ALROSA mined almost 34 million carats in 2009 and is targeting the same production levels in 2010. The diamond miner managed to retain its output volumes close to its precrisis levels because of Gokhran’s support. This allowed the company to overtake De Beers — which pulled back on production during the crisis — as the biggest diamond producer in 2009.
Early in 2010, ALROSA said it was planning to sell up to $3.2 billion of diamonds this year, with Gokhran buying as much as one-third of that volume. However, since then, the company has been selling only to the market. Its sales in the first two months of 2010 totaled $667 million and Andreev told reporters in India that ALROSA’s sales might reach $850 million in the first quarter.
Polished Sales
Polished sales have been on the rise in the first quarter of 2010. Afanasiev said Kristall Smolensk, which sells internationally, saw its polished sales increase by 20 percent to 25 percent. “The demand is growing for all types of product because many dealers and jewelry makers are refilling their stock,” he said. The Russian diamond market seems to be growing slower than the worldwide market. Best sellers are small diamonds of less than 0.3 carats, and diamond jewelry is losing heavily in sales volume to silver and gold items without stones. “Companies are trying to create diamond items ranging from $50 to $100,” said Flun Gumerov, the director general of Almaz Holding.
Hong Kong
At the Hong Kong show, ALROSA auctioned 145 rough diamonds larger than 10 carats worth $5.2 million in a starting price. According to Afanasiev, the buyers in Hong Kong were less inclined to purchase with long loans than U.S. buyers.
The Marketplace
• Kimberley Process (KP) certificates show that Russia exported 14.7 million carats of rough diamonds in 2009 worth $1.2 billion, 40 percent fewer carats than in 2008.
• Most of the gems —10.7 million carats — were exported to Belgium. Israel imported 1.7 million carats and India 1.4 million.
• Russia imported 141,903 carats of rough diamonds worth $124 million in 2009, almost half the amount imported in 2008.
Article from the Rapaport Magazine - April 2010. To subscribe click here.