In May, ALROSA’s revenue from rough and polished sales went up 33 percent year-on-year, totaling $472.1 million, with $462.6 million coming from the rough auctions and the remaining $4.5 million from sales of the miner’s in-house-produced polished. At the same time, the company’s cumulative sales for the first five months of 2017 raised an estimated $2.13 billion, signifying a 5 percent decrease in revenue year-on-year. ALROSA Vice President Yuri Okoemov reiterated in a press release that this was in line with their sales policy implemented in the beginning of 2017 to sell small-sized and lower-priced stones, in contrast to their early 2016 strategy that focused on auctioning off high-quality stocks. Okoemov also pointed out that demand for low-priced rough was recovering in India, after it had slackened at the end of 2016 due to the state monetary reform. During the May 26 conference call that presented the miner’s finalized financial report for the first quarter of 2017 according to the International Financial Reporting Standards (IFRS), ALROSA’s Chief Financial Officer (CFO) Igor Kulichik revealed that the company is considering revising its plans for 2017. He said, “As for our annual production guidance, yes, our budget for 2017 is based on 39 million carats in both production and sales,” and added, “Now we are adjusting our annual budget and most likely we will increase both the production and sales targets for the year.” He said that the company hopes to share the revised figures by the end of summer, emphasizing that “certainly sales volumes will be higher than the previous guidance.”
POLISHERS HOPE FOR MARKET CORRECTION
Russia’s number one polisher Kristall Smolensk reported a 7 percent decrease in sales year-on-year in the first quarter of 2017. Nikolay Afanasyev, the company’s deputy director general for marketing and sales commented to Rapaport Magazine that the polished market is still under pressure, with diamond prices falling and stocks increasing, while the rough prices are going up. “Unfortunately, the balance between rough and polished is still upset,” he said.
Meanwhile, ALROSA CFO Kulichik confirmed that the miner had indeed increased its prices from the start of the year. “We did a number of price adjustments to actually push the price up 3 percent year to date,” he said during the IFRS results call, noting, however, that “certain minor adjustments to the price including minus 3 percent back are quite possible,” while overall the company expects “the prices to stay flat.”
Speaking of demand for polished across different categories, Afanasyev noted some revival in demand for diamonds from .30 carats up of medium characteristics, such as VS and SI clarity, and for special-sized gems weighing 3 carats and higher. He also said the demand was strong for the entire range of I-clarity melee, yet stalling for higher-clarity gems under 1 carat and 1-carat diamonds, adding that “the average customer today is shopping for medium color and clarity diamonds, avoiding both the high-quality and piqué gems.”
Overall, the supply is higher than demand on the polished market, Afanasyev noted, and therefore the latter is likely to stay under pressure during the summer, which is the traditionally slow season. As for the tension between rough and polished prices, Kristall Smolensk believes the market is in need of correction, as it has been out of balance roughly since September 2016. “The rough market seems to be saturated now, or very close to the saturation point, after which the misbalance in the global pipeline should begin to correct itself,” said Afanasyev. “It’s hard to say when it will happen, but I believe it might begin in summer and progress gradually. I don’t expect any sudden dramatic changes.”
YAKUTIA PROPOSES NEW ROUGH SALES STRATEGY
With the need to work out measures to support the country’s polishing industry being a hot topic lately on the agenda of all involved players, including the Russian government and the nation’s top rough producer ALROSA, Yakutia’s government put forward its own initiative this June. The republic’s Minister of Industry Andrey Panov officially presented a project that proposes to trade rough in small batches and even individual stones, as opposed to the large boxes of mixed assortment traditionally auctioned by ALROSA. This sales strategy is expected to help many polishers and jewelry manufactures who are unable to afford buying full-size ALROSA lots. “It will help reduce their production costs and build up profits necessary to reinvest into manufacturing,” Panov said during the project presentation. The latter showcased 38 rough batches with a total of 101 stones ranging in price from $130 to $1,400 per carat. For comparison, ALROSA’s standard box of rough contains a total of 120 carats worth of diamonds of different characteristics and costs $60,000.
Article from the Rapaport Magazine - July 2017. To subscribe click here.