Russia’s largest diamond miner ALROSA expects rough prices to increase in the near future, due to the disproportion of supply and demand in the market. A company press release recommended that the biggest miners should focus on maintaining the stability of the market when forming their pricing strategies because trade speculation represents a potential threat to the business. “ALROSA will regulate its price policies because it is interested in supporting long-term customers,” said ALROSA spokesperson Andrey Polyakov.
ALROSA is planning to sell around $680 million of rough and polished diamonds in the fourth quarter of 2010, targeting the year-end sales to reach $3.42 billion. Its sales for October totaled $250 million.
Capital Go-Ahead
The miner also received the third, and final, approval of the Yakutian parliament to transform the company from a closed to open joint-stock company, which is likely to happen in spring 2011. ALROSA’s press release said the change will allow it to increase its capitalization and attract more money to expand production.
ALROSA issued $1 billion worth of ten-year eurobonds with a coupon of 7.75 percent and will use the money to refinance short-term debt. Currently, 90 percent of the company’s debt is long-term, compared to the beginning of the year, when 80 percent of its debt was short-term, with higher interest rates. The company said that the restructuring so far has reduced its interest payments by 200 percent.
Rough Pressures
Manufacturers and diamond dealers say sales of polished diamonds are growing, compared to previous months, with jewelry makers eager to put more product out on the market for the holiday season. However, the prices for polished are fluctuating.
“It all depends on how much the rough costs you. If the rough didn’t cost much, then you can be competitive and sell more,” said David Natanov, the director of Diamond Panorama, Moscow-based manufacturer and jewelry maker. The best-selling stones are from 0.3 carats up to 1 carat. “Expensive rough is not profitable to polish,” said Irakly Aneli from Nevsky Diamond. Although there are more buyers showing interest in stones with good characteristics as an investment, they are not ready to pay the high prices.
The major predicament for manufacturers is the shortage of rough. The demand for sales from the state treasury is high. “We have a queue lining up toward the end of the year as companies are eager to polish more for the holiday season,” said Vyacheslav Ivanov, Gokhran’s head of planning. The treasury sold more than 1.5 million carats worth $59 million by November 1, 2010, which doesn’t include results of its second auction this year, where gems weighing 10,950 carats were sold for around $27.71 million.
In response to the increased demand, Gorkran intends to offer more diamonds for sale in the final two months of 2010 than it had planned. “Gokhran should have offered more stones earlier,” said Dmitry Vinogradskiy, marketing director of Shreya Core, Moscow-based manufacturer and jewelry-maker. “It takes a company around a month to get gems bought, so companies would be pressed on time to polish gems sold in November by the holiday season.”
The Association of Diamond Manufacturers of Russia expressed concern over what it called the “aggressive interest” of Indian companies in the rough stocks of the state treasury. The comment was made after Surat Rough Diamond Sourcing (India) Limited (SRDSIL) told Rapaport News it was looking to secure supply deals with Russia and Angola. “Russian cutters are concerned that Indian companies are actively trying to get rough from Gokhran by lobbying their interests with the help of their government,” said a source in the industry, who asked not to be identified.
Only companies registered in Russia can buy from the state treasury. So far in 2010, seven companies using Indian capital bought $7.7 million worth of rough from Gokhran, according to Ivanov, against four companies in 2009. He said approximately 30 companies purchased from the treasury in 2010, many of them using foreign capital.
Holiday Sales
Jewelers have high expectations for the holiday season as a whole. “There are some small signs that jewelry sales will rebound for the holiday season,” said Vinogradskiy. Adamas, one of Russia’s largest jewelry producers and retail chains, estimated sales to be 5 percent to 10 percent higher than in December 2009. “However, the shift is toward cheaper goods in every category,” says the company’s representative Vladimir Stankevich.
The surging price of gold has forced manufacturers to alter their collections. “Two years ago, the gold in jewelry items weighed two to three grams; now, the average weight is one to two grams,” said Flun Gumerov, director general of Almaz Holding.
Certified diamonds are gaining popularity as holiday presents. “Gems weighing less than 0.3 carats are often bought as they can be placed in a nice package and they make an affordable, yet precious, gift,” said Aneli. Natanov added that his company plans to offer certified stones as an option for corporate New Year’s gifts.
The Marketplace
• ALROSA sold $2.1 billion worth of rough and polished, 1.2 percent higher than expected, in the first nine months of 2010, according to a company report.
• ALROSA revenue for the same period reached $2.4 billion, which exceeds 1.9 times the revenue for the same period in 2009. The company showed a profit of $208.4 million, compared to a loss in 2009.
• The Russian Assay Chamber stamped 23.36 million gold items, 1.19 million of which were imported, in the first nine months of 2010.
• The chamber also stamped 32.74 million silver items, including 5.95 million imports.
Article from the Rapaport Magazine - December 2010. To subscribe click here.