Rapaport Magazine

Russia

By Anastasia Serdyukova
ALROSA Looks Beyond Borders

Russia’s largest diamond miner ALROSA is considering new joint ventures with African companies to conduct diamond prospecting and possibly mining on the continent. The company said it sees great potential in the diamond deposits there. ALROSA’s specialists have been studying the geology of Angola and say that the possibility of discovering large diamond deposits is very high. The Russian miner is planning to develop diamond fields in the country in cooperation with the Angolan state diamond mining company ENDIAMA. ALROSA also reportedly is planning to launch a joint venture with Botswana Diamonds to study diamond deposits in that country, with the possibility of getting the license to develop these fields.
   The Russian company also is expanding its operations in China’s market. It recently signed an agreement with the Shanghai Diamond Exchange (SDE) to sell its rough and polished at the Shanghai bourse. ALROSA is already supplying its rough to one of the leading Chinese jewelry makers Chow Tai Fook Jewellery Group Ltd. “China’s market has a large potential for bigger consumption of jewelry with diamonds, and therefore rough diamonds,” said ALROSA President Fyodor Andreev.

Polished Sales
   Russian manufacturers and diamond dealers regard the current situation in the market with cautious optimism. On the one hand, polished sales are going well because jewelry makers are replenishing their inventory following the New Year celebrations and a series of other gift-giving holidays in Russia and Asia. On the other hand, the increased demand is pushing rough prices up. “There is speculation again in the rough market and the prices are going up,” said Rajesh Gandhi, director of Choron Diamond. Rough prices have risen 4 percent on average since the beginning of spring, according to Aleksandr Maksimov, director of Yakutia Diamond Company (YDC). He said that good-quality rough, out of which one can make polished gems of .20 carats to 1 carat, has become more expensive because these sizes are selling the best. Meanwhile, rough that is used for production of small diamonds has not gone up in price.

Jewelry Slows
   Jewelry sales are experiencing the traditional slowdown in April following high sales in March. “Sales are down, but this is not out of ordinary and they are not below what they were at the same time in 2012,” said Gandhi. Anastasia Karpova, marketing director of Kostroma Diamonds, one of the larger companies in the jewelry-making city of Kostroma, said that customers prefer white diamonds, be it melee or items with one stone. In 2012, the company was selling a lot of jewelry with white and black diamonds, as well as some with treated blue-colored diamonds. People prefer white gold in most regions, over the slightly red-colored gold that contains copper, which is more traditional in Russia.
   Still, jewelers say that competition is increasing and creating good designs is not enough to lure customers. More companies are introducing extensive customer loyalty programs that include such services as jewelry repair and cleaning free of charge. Maksimov of YDC said that his company started a program to buy back jewelry in exchange for a new piece, which caters to those clients who prefer having new jewelry on a regular basis, but can’t afford to buy diamond items often. Other companies are offering similar programs, which, they say, keep customers coming back. YDC also has introduced an option of exchanging a previously bought diamond item for another one with a bigger stone. But Maksimov said it is too early to say how successful it will be.

Legislative Obstacle
   ALROSA’s manufacturing division has encountered a legislative obstacle in its plan to send a 47.48-carat, pear-shaped diamond to a Sotheby’s auction. The nine-member Ministry of Finance Commission considers the stone a unique one and Russian law prohibits selling unique stones abroad unless there’s a special exemption by the government. They can be sold within Russia. The company asked for a review of the decision because the 128.44-carat rough out of which the diamond was cut had not been considered unique.
   Andrey Kutepov, the deputy head of Gokhran, the Russian treasury, explained that the high-quality work of the company is to “blame” for this limbo. “There’s no analogy of a stone like that in the state treasury, and while the rough stone over 100 carats was not considered unique, the quality of polishing and its characteristics of J color and VVS1 clarity make it unique,” he said. It might be possible for the state treasury to buy the stone, but Kutepov said it was not planning to do so in this case.
   The dispute highlights a clause in the country’s legislation that many believe is outdated. Although such situations are very rare, according to Kutepov, the treasury has long proposed abolishing this particular rule because it creates unnecessary obstacles for manufacturers.

Article from the Rapaport Magazine - May 2013. To subscribe click here.

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