|
|
Russia
ALROSA’S New Plan
By Anastasia Serdyukova
Russia’s largest diamond miner ALROSA said that it had signed a two-year contract with Chow Tai Fook Jewellery Group Limited (CTF), a leading jewelry manufacturer in China, and that more rough supply contracts with individual jewelry companies may be forthcoming
as it searches for more stability and diversification of its sales. For ALROSA, the appeal of CTF is in the wide variety of jewelry items the company produces for many different segments of the market. It is because CTF targets the full range of price points and product niches that “the company is more financially stable and less susceptible to market volatility,” said Vladlen Nogovitsin, the head of ALROSA’s client relations department. CTF has been buying ALROSA’s goods at the spot market, but the Russian miner wanted more stable connections with China. “We believe this market has a great potential in terms of the growth in diamond jewelry consumption, as well as demand for rough diamonds,” said Fyodor Andreev, ALROSA’s president. China is currently the fifth-largest buyer of ALROSA rough and its companies bought around $50 million worth of rough in the first six months of 2012. This is seven times less than the volume of rough that went to India, even without taking into account the stones that would end up in India after being bought by Belgian and Israeli companies. Russian companies have repeatedly voiced their concern over their market dependency on India.
ALROSA closed the first nine months of 2012 with revenues of
$2.7 billion, up from $2.6 billion for the same period of 2011. The sales
of rough, however, were slightly less than 2011: $2.156 billion in 2011 compared to $2.127 billion in 2012. The company’s 2012 net profit is
$662 million for the first nine months, while in the first nine months of 2011, it was $712 million. ALROSA characterized the situation at the market as “difficult” due to the fall in jewelry demand in Japan and the U.S., the economic slowdown in India and China and the overall lack of liquidity. Market participants agree that despite some improvement, clients still do not want to buy for inventory. “They are looking for specific stones and characteristics and don’t buy anything extra,” said Rajesh Gandhi, director of Choron Diamond, adding that the best-selling stones are SI1 and below.
ALROSA estimated that the annual increase in rough prices for 2012 would be 1 percent, instead of the 4 percent that it forecast in the beginning of the year. The company describes this as “a moderate increase in the price,” which resists the pressure from many speculative components. “The problem at the moment is that the market is overheated and dealers have too much in stock,” said Maksim Shkadov, director of Kristall Smolensk. He called on mining companies to limit their supply of rough to the market. He explained that the Diamond Trading Company (DTC) October sight reached $750 million because many companies had delayed purchases for so long. The other problem for the jewelry and diamond producers is that the industry is losing its share of the luxury products market. “Expensive handbags and designer items are taking away sales from diamond jewelry,” said Shkadov. “There’s no general promotion of a diamond as a fashionable item.” He said that as the new president of the International Diamond Manufacturers Association (IDMA), he’s been discussing the need to coordinate joint efforts for promoting diamonds with De Beers and ALROSA. Shkadov said that mining companies should create “a diamond OPEC” (Organization of the Petroleum Exporting Countries) to coordinate the efforts of diamond producers.
Most jewelry companies expect their 2012 sales to be at the level of 2011, depending on how December sales go. “There’s delayed demand. People were buying poorly all year long, so they may decide to spend on presents at the end of the year,” said Gandhi. Sales of diamond jewelry have been slow in recent months. “The
demand is down due to the financial crisis, but the situation is far better than in 2008,” said Dmitry Kuntsev, director of Smolensk Diamonds. People are looking for less expensive jewelry with less gold and small diamonds of .20 carats and less. Flun Gumerov, director of Almaz Holding, explained that Russian jewelers have been facing much competition from Chinese imports in this smaller, lower-cost segment in terms of design and price. In response, many Russian companies “have improved their design and production techniques to make items less expensive to compete with imports,” Gumerov said, explaining this was a positive change for the jewelry industry in 2012.Article from the Rapaport Magazine - December 2012. To subscribe click here.
|
|
|
|