Rapaport Magazine


By Svetlana Shelest
ALROSA Opens Mine, Decreases Output

ALROSA’s Vice-President and Chief Financial Officer (CFO) Igor Kulichik officially announced in early June via Russia’s Interfax agency that the miner has approved the 37 million carat production plan for 2016. The original 39 million carat target for 2016, which was part of the company’s long-term plan to increase annual output to 41 million carats by 2023, was dropped due to a 30 percent slump in rough sales in 2015, which created a significant build-up in the miner’s stock. Currently, the company assesses its inventory at 22 million carats and $2.5 billion in value. ALROSA projects that it will take three to four years for the accumulated inventory to go down to the optimal level of 12 million to 14 million carats.
   ALROSA plans to achieve the decreased output target for 2016 by reducing production at the alluvial deposits developed by the miner. None of the active mines will be affected by this reduction policy, emphasized Kulichik. In total, alluvial deposits account for 21 percent of ALROSA’s production.
   At the same time, the world leader in diamond mining announced that it began development of a new major diamond deposit, the Zarya pipe, operated by the company’s Aikhal Mining and Processing Division. The stripping works began on June 10. The Zarya is expected to reach its full design capacity of 1 million tons of ore per year by 2021 and to remain operational for 13 years. ALROSA’s President Andrey Zharkov said in a press release, “The development of Zarya will guarantee stable use of the existing production capacities and ensure recovery of a total of 3.6 million carats of rough during its lifespan.”

Kristall Reports Market Improvement
   Russia’s leader in diamond cutting, Kristall Smolensk, reported a 23 percent increase in revenue in the first quarter of 2016 compared to the same period last year. As the company’s Deputy General Director in charge of sales and marketing Nikolay Afanasyev said in his interview with Rapaport Magazine, “The first three months of the year were quite good for the entire industry. The market has come back to life, and sales went well, especially in February and March.” The three traditional categories of diamonds, i.e., stones below .29 carats, around .5 carats and 1 carat, all traded well. The demand, however, was weaker for larger gems, weighing 3 carats and more. Among the fancy cuts there was a notable decline in demand for princess cuts. Regarding the second quarter, Afanasyev said that April and May sales also surpassed 2015 results, yet June is already showing a slowdown in business activity. “Summer is traditionally a slow season in our industry,” he noted, “but starting in October, I expect the market to pick up again.” Overall, the company believes that the market so far has reached a balance in supply and demand and that it’s likely to maintain the same level of performance throughout the year as it has already shown in the first quarter. “I would expect neither significant breakthroughs nor throwbacks,” concluded Afanasyev.

Diamond: Could Real Become Rare?
   In response to the recent announcement by the Diamond Producers Association (DPA) of its first generic marketing campaign for diamonds under the slogan, “Real is Rare. Real is a Diamond.” targeting the Millennial consumers, Afanasyev said that Kristall Smolensk welcomes all initiatives in this field and that the shift in the campaign focus from the old-time “Diamonds are Forever” to the concepts of rare and real that appeal to the younger audience is very timely. However, Eduard Utkin, CEO of the Russian Jewelers Guild Association, speaking to Rapaport Magazine, expressed some concerns of the jewelry wholesale and retail segment of the pipeline: “This effort seems to be a little late. It should have been launched three years ago, when we saw the very first evidence of the natural diamond market presenting an opening for lab-grown stones. Today, when diamond sales have shrunk because of the synthetics pouring in, it will be hard to break the trend.” Utkin also added that the Millennial generation appears to share a mind-set that values all kinds of resource-saving shortcuts to the goal, whatever it may be. This, in the field of diamond sales, sadly often translates to: “If the lab-grown stone looks exactly the same as the natural one, why pay more?” As Utkin explained further, “If it takes special equipment to see the difference, it means that the end consumer can’t tell the difference. Of course everyone roots for the diamond campaign to yield fruits. But the reality of the present-day market indicates that one way the campaign’s slogan might prove prophetic is in that natural diamonds in jewelry might indeed become a rare thing.”

Article from the Rapaport Magazine - July 2016. To subscribe click here.

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