Rapaport Magazine

ALROSA Finds Rough Demand High

Russia April Market Report

By Anastasia Serdyukova

Russia’s largest diamond producer ALROSA says the demand for rough is steadily high due to more active jewelry and polished markets, which the company estimates have grown between 8 percent and 12 percent since the beginning of the year. “The situation is not bad and we are likely to meet our sales target for the first quarter of 2012,” said Andrey Polyakov, the company’s representative. ALROSA was planning to sell $1.123 billion worth of rough and polished in the first three months of this year. Its sales for January and February were $694 million, a 21 percent increase against the same two months in 2011.  

ALROSA also has resumed selling at spot market, with the first tender held in Antwerp, Belgium. In Moscow, the company held three auctions between the end of February and early March for stones larger than 10.8 carats. In the first auction, the company sold 362 of 390 offered lots containing 15,000 carats for $46.3 million, with the sale prices exceeding presale estimates by 90 percent. In the second and third auctions, ALROSA sold 104 out of 108 stones weighing 2,000 carats for $10.3 million and 106 out of 120 stones weighing 1,900 carats for $10.5 million. In those auctions, the sale prices exceeded presale estimates by more than 40 percent.

In other developments, India asked Russia to increase its rough diamond supply and to push ALROSA to open long-term supply contracts to more Indian applicants. The request came during a political meeting in New Delhi in late March. Both sides, noting that trade volume between them is far below its potential, agreed to work toward a substantial increase.

ALROSA’s revenue for all of 2011 was $4.03 billion, approximately 20 percent higher than in 2010. The figures are calculated according to Russian accounting standards. Net profit was $1.01 billion, more than three times higher than in 2010, which reflects the fact that the company’s costs and spending remained at approximately the same level as in 2010. The cost of diamond mining in 2011 is reported as $860 million, almost the same as the previous year, and $14 million was spent on geological exploration. Around 40 percent of its production was sold in Russia; the rest was sold abroad, primarily in Belgium.

The ALROSA Supervisory Board endorsed the idea of selling 14 percent of the company’s shares in an initial public offering (IPO), with the Russian Federation and the Yakutian government — the two largest shareholders — selling 7 percent each. The board stressed the importance of retaining state control of ALROSA — with the Russian Federation and the Republic of Yakutia each retaining a stake of 25 percent plus one share — to avoid having to buy back $1 billion worth of ten-year Eurobonds issued in 2010.

Russian manufacturers characterize the polished market as close to stagnant, but still moving. “There’s a tendency for a slight growth of the market,” said Nikolay Afanasiev, the head of sales of Kristall Smolensk, Russia’s largest manufacturer. He noted that the market has been improving gradually since the end of November and his company is meeting its targets for the first quarter of 2012. Although there’s a demand for polished, the problem is that buyers are showing great resistance to the current prices. Rajesh Gandhi, director general of Choron Diamond, said some categories are not selling, even with a 30 percent discount from the prices of two or three months ago. But most manufacturers are keeping their prices at the same level as at the beginning of 2012.

Afanasiev said that demand for piqué diamonds of 30 points to 90 points is strong, and 1-carat SI stones also are well positioned for growth. Aleksandr Maksimov, director of Yakutian Diamond Company, said rough of high quality is so expensive that polishing diamonds of E, VVS1 characteristics yields no profit.

Manufacturers say the challenge is to find their own production formula to build in a profit margin. “It’s not profitable just to polish and sell diamonds; it’s better to use gems in your own jewelry making,” Maksimov said. Yet, jewelry makers say that finding good polished at realistic prices still is a challenge. “There’s a great variety of stones of average characteristics in the market, but there aren’t many good gems at affordable prices,” said Oleg Ketlerov, diamond department manager of jewelry maker Vangold.

Certified diamonds sold well, along with jewelry generally, when the country bought gifts to celebrate International Woman’s Day on March 8. “Diamonds between .30 carats and .90 carats with medium characteristics were the most popular,” said Marina Efimova from Brilliantovaya Yakutia, a jewelry maker associated with state-owned manufacturer Komdragmet. She noted that sales of medium-priced jewelry were up for the holiday. Yet, it’s still jewelry costing less than $700 that accounts for most jewelry sales. Maksimov said that rings and earrings in this price range — with diamonds of .15 carat — were selling like hot cakes. Ketlerov said demand is high for jewelry in red gold.

The Marketplace

  • Russia’s diamond production rose 1 percent year on year in 2011 to 35.14 million carats and it rose 12 percent in value terms to $2.675 billion. ALROSA’s contribution was 34.438 million carats.

  • Russian diamond exports fell by 20 percent in 2011 to 32.347 million carats but the value of exported diamonds increased by 37 percent to $3.811 billion compared to 2010 finals.

  • Russia’s state treasury sold 525 lots of rough diamonds worth $12.058 million to 30 companies in March. The initial offer was 556 lots worth $12.595 million. Each lot represented a single stone of over 10.8 carats.

  • Best-selling polished diamonds are .30 carats to .50 carats in G, VS1-VS2.

Article from the Rapaport Magazine - April 2012. To subscribe click here.

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