Rapaport Magazine

Russia

By Svetlana Shelest
ALROSA’s 2015 Production Up, Sales Down

In 2015, ALROSA produced a total of 38.3 million carats of rough, representing a 6 percent year-on-year increase. The gain was driven by the growing production rates at the Mir and Udachny underground mines and the recently commissioned Botuobinskaya open-pit mine in Yakutia and Karpinskogo-1 open-pit mine in Arkhangelsk. The latter mine represents the company’s Severalmaz division, the mining giant’s designated driving force of its long-term strategic development plan through 2023.
   ALROSA estimated its 2015 preliminary sales volume at 30 million carats, which is $10 million less than the company was hoping it would be able to sell back at the beginning of the year, as well as $10 million less than it actually sold in 2014. Revenue from rough in 2015 is expected to reach at least $3.4 billion.
   In the fourth quarter of 2015, ALROSA sold a total of 7.1 million carats, which is 30 percent more than in the third quarter. The company sold almost twice as much of industrial-grade diamonds quarter on quarter — a total of 3 million carats at an average price of $10 per carat. It also traded 4.1 million carats of gem-quality diamonds at an average price of $166 per carat, effectively reducing the price by almost 9 percent compared to the previous quarter, which also saw an 8 percent price reduction.
   During a visit by ALROSA’s management to Mumbai and Surat, India, in February, company President Andrey Zharkov told a local reporter from Bloomberg that he saw no indications in the market for further adjustment of rough prices. He also shared his expectation that demand for polished might grow by 1 percent to 2 percent in 2016, helping stabilize the overall situation in the pipeline.

Diamantaires Stand Their Ground
   In February, JUNWEX St. Petersburg, Russia’s largest annual jewelry exhibition, took place under challenging conditions. According to Eduard Utkin, chief executive officer (CEO) of the Russian Jewelers Guild Association, overall demand for jewelry in the country has shrunk by 50 percent, while jewelry retail prices have gone up by 80 percent, and sometimes even 100 percent, following the dramatic devaluation of the ruble. “A crisis usually triggers a shift in consumer demand toward the cheaper products on the market and that’s what we see happening. Customers are now more actively shopping for silver than gold, and for cheaper natural stones or even synthetic ones,” Utkin said. Many retailers agreed that demand for silver jewelry has increased by 30 percent to 35 percent, and many of those previously specializing in gold jewelry have responded by introducing silver collections into their product range.

Upper Prices Selling
   However, Kristall Smolensk’s jewelry division, Smolensk Diamonds, reported better sales results in St. Petersburg than in 2015 and even 2014. “The number of companies offering expensive high-quality diamond jewelry has dwindled,” explained Vyacheslav Rayevsky, founder of Smolensk Diamonds and head of production at Kristall Smolensk. “Many have revised their product lines to offer cheaper merchandise, leaving very few vendors in the luxury segment, because staying in it is quite expensive; it requires considerable investments in stock. This seems to have created the situation where those customers who would still like to shop for top-quality diamond jewelry in our country don’t have many sellers who meet their needs,” he continued. According to Rayevsky, diamond jewelry shoppers at JUNWEX St. Petersburg looked at products priced $4,000 and up, but showed little interest in items in the more affordable price range starting with a $1,300 price tag.
   Premier, a recent survey conducted by Synovate Comcon, the Russia-based group of the international research network Ipsos, has also confirmed this trend. It reported that the share of high-income customers shopping for upper-price-range jewelry has increased from 40 percent in 2013 to 43 percent in 2015. The company’s projection is that this number is likely to stay unchanged for a while.
   Eugeniy Kustov, director of the Kostroma-based Kustov jewelry company, pointed out that while previously customers shopped in equal proportions for jewelry with diamonds and colored gems, today they have a strong preference for diamonds. “In the diamond jewelry mix, the demand is higher for designs with a prominent centerpiece, not pavé designs, which were quite popular two and three years ago,” he added.
   Still, despite some successes, the overall market situation remains arduous and calls for more hard work than optimism, believes Viktor Tulupov, director of the Yekaterinburg-based Tulupov Jewelry House. “In rubles, our sales were better than in 2015, but that converts to a lot less in dollars. The gems we need for our products are traded in dollars. However, consumers are not ready to pay the double price for jewelry, so we are forced to keep the prices as low as we can by cutting down on the margin. Of course you can’t call the situation very happy, but that’s how work is, and we are committed to it,” he concluded.

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