RAPAPORT... Russia’s largest diamond miner ALROSA has seen its first-half 2010 revenue rise to $1.73 billion, which is four times bigger than for the same period last year and almost two times the sales in the first quarter of 2010. In other positive financial results, the company’s net income totaled $97.3 million, against the loss of $482.6 million for the first half of 2009.
“If no cataclysm happens, the half-year and year-end results could be the best in the company’s history,” said ALROSA’s Chief Financial Officer (CFO) Igor Kulichik in an interview with Cbonds Review magazine. The company is targeting $3.2 billion in revenue for 2010.
The miner’s report said the higher prices are driven by the lack of rough, whose price rose by 20 percent in the first six months of 2010, with dealers adding a 10 percent to 15 percent premium to those prices when reselling the gems. The average price for polished in Belgium was 48 percent above the beginning of the year, according to ALROSA, which noted that the growth of jewelry sales in the U.S., Middle East and Asia also contributes to the increase in prices. The Middle East and Asia currently represent 38 percent of the jewelry market.
Manufacturing Forecast: Cautious Optimism
Manufacturers and diamond dealers said that polished sales are growing slowly, but steadily, in Russia, but that expectations for autumn are quite reserved. “Almost everything that is produced is sold and there’s a demand for more,” said Ararat Evoyan, vice president of Russian Diamond Manufacturers Association, noting the polished output is still 30 percent below precrisis levels.
Small stones under 0.3 carats are most in demand domestically, but competition is strong in this category from importers. “More gems are imported from Armenia or India, where labor costs are much lower,” said Daniil Efremenko from Eniseyskiy Jewelry Factory in Krasnoyarsk. As a result, many Russian manufacturers prefer dealing with bigger gems for export or for their own jewelry production.
While manufacturers reported that rough diamond prices are rather high in Russia and keep on growing, jewelers interviewed by RDR said that, on average, they are paying the same price for polished diamonds as at the beginning of 2010. Many diamantaires admitted that the ability to trim inventory levels became crucial in surviving the crisis. “We have bigger opportunities now because we are able to utilize all types of rough,” said Tamaz Khikhinashvili, who co-owns three companies in St. Petersburg — Nevsky Brilliant, Inreal and New Diamond Technologies — that deal in polishing, producing diamond powder, synthetic diamonds and jewelry at one facility.
Skills Shortage
As the industry begins its recovery, both manufacturers and jewelry makers said there’s a shortage of professional diamond workers because the crisis drove many to other trades. “There’s a lack of an educational base,” said Stanislav Hofman, commercial director of St. Petersburg–based Sadko Jewelry House. “It’s difficult to find a diamond cutter who can get the most out of a stone,” said Aleksandr Kolyadin from Nevsky Brilliant, although he noted that the company did hire a number of diamond professionals from Russia and abroad who lost their jobs during the economic turmoil.
Although holiday sales are expected to grow, jewelers refrain from predicting by how much. “It depends on what is left in the shops after August, with its raging fires and heat,” said Sergey Dokuchaev, director general of Russkiye Samotsvety, noting that many shops reported a dramatic fall in sales during the month.
Gold jewelry production has been growing since the beginning of the year and first-half totals are 26 percent higher than for the same period last year. Jewelers say their sales are growing, but have yet to reach 2008 levels. “At the moment, there is a strong and aggressive fight for each customer, especially in the diamond sector, which fell 50 percent through the crisis,” said Hofman. He noted that marketing tools and company reputation are playing more important roles in closing sales. Flun Gumerov, president of Almaz-Holding, said his company is franchising its stores and the sales in the company’s stores are better than sales to wholesalers.
Custom Lines Popular
Many companies continue to focus on custom jewelry lines that are proving successful with customers. Sadko has expanded its Illusions collection, in which smaller diamonds are arranged to give the impression of a big gem, for example, and Russkiye Samotsvety spokesmen said that along with its reputation as a 98-year-old company, its invisible-set diamond jewelry is attracting many customers.
The real capacity of the market will be clearer after the results are in from September’s Junwex Moscow and November’s Golden Globe international jewelry exhibition, both held in Moscow. In addition to the exhibitions, companies are looking for more sales with neighboring states. The new customs union facilitates transactions between Russia, Belarus and Kazakhstan, while the warming of political relations between Moscow and Kiev encouraged a number of companies to expand into the Ukrainian market.
The Marketplace
• ALROSA sold $25.5 million worth of 10.8-carat+ diamonds at its 40th international auction in Moscow.
• The buyers were offered 919 stones weighing 15,200 carats, with the biggest one weighing 153.62 carats.
• 269 out of 281 lots were sold, with 63 percent exceeding the estimated pre-auction price.
Article from the Rapaport Magazine - September 2010. To subscribe click here.