Rapaport Magazine

Gokhran Plans to Hold Diamond Stockpile

Russia October Market Report

By Anastasia Serdyukova
The Russian Ministry of Finance said it is not planning to sell off the stockpiled diamonds bought by Gokhran, the state treasury, from ALROSA, the country’s largest miner, during the worldwide economic crisis. The government purchased around $1 billion worth of rough to support the company in 2009 and keep it in production when demand for diamonds on the world market plummeted. At one point this summer, the ministry and ALROSA discussed selling the stockpiles to satisfy the strong demand for rough that has risen in the market.

“We don’t have any problems with revenues this year; therefore, there is no pressing need for making a sale,” Finance Minister Alexei Kudrin told the Interfax news agency. He also said that 2009’s purchase of rough had been a good investment because rough prices have risen through 2010.

While it plans to hold the rough off the world market, there is still a chance that Gokhran may sell some of its inventory to Russian manufacturers, either directly or through its auctions. “I think somewhere between October and December, Gokhran will start selling rough to the domestic market,” said Kristall Smolensk Director Maksim Shkadov. “They are unlikely to sell big volumes because this is a powerful market regulator.” He also said the sales from Gokhran could alleviate the deficit of rough that Russian manufacturers are facing.

Kristall Smolensk Revenue Up

Kristall Smolensk, Russia’s largest diamond manufacturer, raised its revenue estimates for 2010 by 40 percent to between $325 million and $357 million. The company posted its half-year sales revenues of approximately $162 million and profits of $4.9 million.

“The situation at the market is favorable for us,” said Shkadov. “ The crisis has wiped out some of our competitors and the demand for our production is high.” He said the company is capable of even bigger volumes, provided it gets enough rough.

Shkadov said that the market is working at full capacity in the second half of 2010 and he expects polished prices to rise if no turbulences occur. Kristall Smolensk also is trying to increase its presence in the Russian retail jewelry market, selling items under the brand name of Smolensk Diamonds.

Yakutians Seek Bigger Sales

Manufacturers and jewelry makers from Yakutia are trying to capitalize on their republic’s name, which has become synonymous with the diamond industry in Russia. More than a dozen companies presented their products under a sign “Jewelers of Yakutia” at the September trade show Junwex Moscow. They are hoping that branding their products will boost sales.

“Using the name Yakutia gives companies a 30 percent increase in sales,’’ said Isabella Soltys from Sakha Taas, citing findings from market research conducted by her company. And this is much-needed support. Although the Russian Republic of Yakutia produces over 25 percent of the world’s rough, its manufacturing share is minute — approximately $140 million a year — while its jewelry-making revenues are only $4 million. “Our goal is to increase manufacturing to 10 million carats by 2015,” said Vasily Vlasov, the chairman of the Yakutia Diamond Council. 

Yakutia manufacturers also are facing money shortages and lack of rough supplies. Vlasov said the government was constantly negotiating with ALROSA to ensure local manufacturers get sufficient rough. “We wish local manufacturers would be given preference in getting the volumes they need,” he said.

With rising rough prices shrinking profit margins, an increasing number of Yakutian manufacturers have turned to jewelry making in the past five years. “Attracting investors to Yakutia and selling polished is difficult because the region is located far from world diamond centers, so the companies who also deal in jewelry making are doing the best,” said Vasily Neustroev from the republic’s Committee for Precious Metals and Gemstones.

Companies report that the average sales check has risen around 15 percent in retail. “The most positive thing of the second half of the year is that the situation is stabilized. In 2009, companies were making plans only for a quarter, now they are making plans for six months and a year,” said Maksim Strezhnev, director general of Rifesta. He said his company is almost at 2008 sales levels and that it did so by offering new collections and softening payment requirements.

Rajesh Gandi from Choron Diamonds said there was an acute need for new collections, since none were produced in 2009. The Junwex Moscow show saw increased demand for items in the $2,000 to $3,000 price range, along with much cheaper goods. “The time of cheap things and items without stones is going away,” said Fyodor Poludenny from Estet. He is expecting the demand for the luxury segment to rise significantly by the end of 2010, despite the fact that diamonds used currently are small in size and quality.

“In order not to raise the price, companies are saving on the cost of diamonds because they can’t save on gold, which is growing in price, and no one wants to reduce profits,” said Anton Schepotiev from Almoss, a jewelry maker and manufacturer.

The Marketplace

• Diamonds weighing less than 0.3 carats remain the most popular category in Russia, yet the prices for such stones have been stable since the beginning of the year.

• ALROSA sold $2.565 billion worth of rough in the first eight months of 2010 and is planning to sell $2.780 billion in the period from January to September.

• The company raised its year-end sales forecast to $3.44 billion.

• ALROSA offered 73 polished diamonds at the auction in Hong Kong, with the starting price of $3 million, and 89 rough diamonds worth $5.6 million.

Article from the Rapaport Magazine - October 2010. To subscribe click here.

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