Rapaport Magazine

ALROSA Sees Market Stability

Russia June Market Report

By Anastasia Serdyukova


Russia’s largest diamond miner ALROSA increased its net profit by 53 percent in the first quarter of 2012 compared to the first quarter of 2011. The company earned over $300 million, according to Russian accounting standards, and its revenue increased 40 percent to $1.04 billion. ALROSA sold 77 percent of its rough abroad in the quarter, shrinking the share of domestic sales to 23 percent from 30 percent in the first quarter of 2011. The company didn’t sell any rough to the state treasury.

“The market is acquiring the stability it lost half a year ago,” ALROSA said in its report. Yet the company expressed concern over the unstable start of 2012 for major wholesalers of polished diamonds such as Belgium, whose exports fell 24.4 percent in the first quarter of 2012 against the same time in 2011, and India, whose exports shrank 47 percent in January and February 2012 year to year.

ROUGH PRICES

ALROSA said that “the dynamic of rough prices in the first quarter of 2012 corresponded to that at other commodity markets.” In January, there was the overall decline in rough prices of diamond producers, but by the end of the first quarter, the prices stabilized. Russian manufacturers, most of whom buy from ALROSA, say the price of rough even increased slightly in the beginning of the second quarter, going up around .50 percent to 1 percent a month. “The prices for rough increased for certain categories, but this is just a correction because the seller sees the demand at the market,” said Aleksandr Maksimov, director general of Yakutian Diamond Company. ALROSA’s report says that the strategy by rough diamond producers of cutting back on supply helped to assure the “stability of prices on the rough and polished diamond markets.” The company also noted that “the sellers of polished supported the existing levels of prices” because even though inventories declined in the second half of 2011, “there was no massive refill of the stocks.”

ALROSA said the median rough price increased 53 percent in 2011 to $129.50 a carat, while the median price of jewelry-quality rough was $196.90 and the price for nongem-quality diamonds was $7.70 a carat. For the whole of 2011, the company’s profit of $861 million was 2.3 times higher than in 2010, according to international accounting standards, and its revenue increased by 21 percent to $4.4 billion.

POLISHED SALES

Russian manufacturers who sell their product abroad say their sales are stable and even growing slightly. The bulk of gems that Russian companies are exporting is within the range of .50 carats to 2 carats. Maksimov said that the characteristics most in demand are H to K color and VVS1 to VS1 clarity. Ekaterina Blinova, who is in charge of marketing at Zvezdochka, a manufacturer in the northern part of Russia, says characteristics below G and VS1 are selling well on the export market. “The domestic market wants characteristics no less than SI/VS1,” she said, emphasizing that during April all of her company’s sales were abroad.

Most manufacturers said domestic sales slowed down or almost stopped in April and May due to several factors: Jewelry makers had already filled their stock for their summer collections, the production and sale of jewelry was seasonally stalled and most of the country had extended holidays in the first half of May.

Manufacturers say that the bulk of diamonds sold domestically are .30 carats and under. Although the sales inside Russia are slow, this doesn’t affect the prices. “Even though manufacturers are complaining about the slow sales, none of them would consider lowering the price even a little bit,” said Elena Galkina, who is in charge of gem purchases for jewelry maker Russian Diamond House. Galkina further noted that while there are no problems finding big diamonds of any color or clarity, finding quality small brilliants can be a big challenge.

JEWELRY SALES

Jewelry sales were slow in early May due to public holidays in most of the country, although jewelers reported that in places where the weather was bad, sales were good.  “More expensive items are selling better,” noted Galkina. Jewelers said classical items with stones from .50 carat to 1 carat were in demand. “People are looking for less design and less gold when it comes to classical items with diamonds,” said Svetlana Rakhmanina from Ekaterinburg-based Rifesta. For summer months, with the approach of the bridal season, jewelers are banking on wedding ring sales. “We are also getting ready for graduation time with pendants and inexpensive rings,” said Rakhmanina. Most summer purchases are made at the New Russian Style show, which opened May 30 in Moscow.

 

THE MARKETPLACE

  • ALROSA sold $45.7 million worth of rough diamonds in 10.8 carats and larger through two auctions at the end of April.
  • In the first auction, held in Moscow, the company offered 1,164 stones weighing 19,000 carats in 321 lots. A total of 297 lots sold for $40 million.
  • At the auction in Ramat Gan, the company sold 25 diamonds weighing more than 500 carats for $5.7 million.
  • As part of its debt reduction efforts, ALROSA paid off $100 million of its $500 million debt to VTB Bank and refinanced the other $400 million.

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