Rapaport Magazine


By Svetlana Shelest
Stable Market, Rough Sales Up

Kristall Smolensk, Russia’s largest diamond manufacturer, reported a 48 percent year-on-year increase in sales in the first half of 2016. Nikolay Afanasiev, the company’s director for marketing and sales, shared with Rapaport Magazine that the September Hong Kong Jewellery & Gem Fair was a success for the polisher, although right now the market is a bit below expectations. At the fair, the demand was traditionally high for 1-carat diamonds, but slacked significantly for 2-carat and 3-carat gems. Mid-tier product, such as round-cut diamonds in the .29 to .99-carat range, sold moderately well, showing neither surges nor slumps in demand. In fancy cuts, the princess cut was out of favor, while pears, ovals, marquises and cushions were quite popular. Looking ahead, the company expects sales in the last quarter of 2016 to be on par with 2015. “We believe that the market will be stable, allowing for steady performance, without serious ups or downs,” said Afanasiev.
   The country’s largest rough producer ALROSA announced its rough and polished sales results for September 2016. According to the company’s Vice President Yury Okoemov, sales were “significantly higher than the September 2015 figures.” The miner’s total sales of rough in the first month of the fall reached $435.1 million and polished diamond sales totaled $18.9 million.
   Speaking of projections for the entire year 2016, ALROSA President Andrey Zharkov said in his recent interview to the national TV channel Russia 24 that he expects the company’s annual revenue to increase by 15 percent, and its net income to grow two or three times from the level of 2015. At the same time, according to Zharkov, rough diamond prices in 2016 will generally fall by 2 percent to 3 percent year-on-year.

WTO Challenges for Polishers
   Both ALROSA and Kristall Smolensk are now involved in an adjustment process triggered by the recent changes in the Russian legislation made to meet the World Trade Organization (WTO) requirements. Russia’s 6.5 percent export duty on rough was lifted on September 1, and the leading industry players and authorities are now trying to work out a package of measures to dampen its impact on the polishing industry. In his mid-October interview to the Rambler News Service, Zharkov confirmed that removal of the export duty does in essence mean that domestic polishers will now have to pay 6.5 percent more for rough, which puts them in a difficult position. “I believe that we need to focus on developing the compensatory mechanisms to support Russia’s polishers,” he said, “because if we don’t, we’ll see our polishing industry shrinking.” Kristall Smolensk shared with Rapaport Magazine that in addition to the increase in rough prices in the wake of the WTO changes, there were also price bumps at ALROSA’s September and October trading sessions. “This is a significant rise in purchasing prices for our company — they went up by about 10 percent since August,” said Afanasiev, “but we are prepared. We are developing a strategy to fight the challenge. We’ll be more selective both in purchasing and processing the rough we buy and we hope to adapt to the new situation in three to six months.”

Support for Polishing Industry
   Kristall Smolensk also confirmed that it is actively participating in the working group tasked by the Russian Finance Ministry with producing a development plan for the polishing industry that incorporates measures of support.
   In the meantime, the ministry announced in early October that it will pitch a proposal to the government to lift the import duties on high-technology polishing equipment that is not available in Russia. Currently, the import duties range between 5 percent to 10 percent of the equipment value.
   The ministry is also considering setting up a diamond certification facility that would work with international grading standards — which differ significantly from the Russian grading system — with a view to expanding international trading opportunities for Russian polishers. It also hopes to simplify the presently strict state control procedures for temporary export of gems that apply to all vendors who need to send their product samples abroad for presale demonstration or participation in international jewelry and gem shows.

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

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