Russia’s largest diamond miner ALROSA increased its net
profit by 53 percent in the first quarter of 2012 compared to the first quarter
of 2011. The company earned over $300 million, according to Russian accounting
standards, and its revenue increased 40 percent to $1.04 billion. ALROSA sold
77 percent of its rough abroad in the quarter, shrinking the share of domestic
sales to 23 percent from 30 percent in the first quarter of 2011. The company
didn’t sell any rough to the state treasury.
“The market is acquiring the stability it lost half a year
ago,” ALROSA said in its report. Yet the company expressed concern over the
unstable start of 2012 for major wholesalers of polished diamonds such as
Belgium, whose exports fell 24.4 percent in the first quarter of 2012 against
the same time in 2011, and India, whose exports shrank 47 percent in January
and February 2012 year to year.
ROUGH PRICES
ALROSA said that “the dynamic of rough prices in the first
quarter of 2012 corresponded to that at other commodity markets.” In January,
there was the overall decline in rough prices of diamond producers, but by the
end of the first quarter, the prices stabilized. Russian manufacturers, most of
whom buy from ALROSA, say the price of rough even increased slightly in the
beginning of the second quarter, going up around .50 percent to 1 percent a
month. “The prices for rough increased for certain categories, but this is just
a correction because the seller sees the demand at the market,” said Aleksandr
Maksimov, director general of Yakutian Diamond Company. ALROSA’s report says
that the strategy by rough diamond producers of cutting back on supply helped
to assure the “stability of prices on the rough and polished diamond markets.”
The company also noted that “the sellers of polished supported the existing
levels of prices” because even though inventories declined in the second half
of 2011, “there was no massive refill of the stocks.”
ALROSA said the median rough price increased 53 percent in
2011 to $129.50 a carat, while the median price of jewelry-quality rough was
$196.90 and the price for nongem-quality diamonds was $7.70 a carat. For the
whole of 2011, the company’s profit of $861 million was 2.3 times higher than
in 2010, according to international accounting standards, and its revenue
increased by 21 percent to $4.4 billion.
POLISHED SALES
Russian manufacturers who sell their product abroad say
their sales are stable and even growing slightly. The bulk of gems that Russian
companies are exporting is within the range of .50 carats to 2 carats. Maksimov
said that the characteristics most in demand are H to K color and VVS1 to VS1
clarity. Ekaterina Blinova, who is in charge of marketing at Zvezdochka, a
manufacturer in the northern part of Russia, says characteristics below G and
VS1 are selling well on the export market. “The domestic market wants
characteristics no less than SI/VS1,” she said, emphasizing that during April
all of her company’s sales were abroad.
Most manufacturers said domestic sales slowed down or almost
stopped in April and May due to several factors: Jewelry makers had already
filled their stock for their summer collections, the production and sale of
jewelry was seasonally stalled and most of the country had extended holidays in
the first half of May.
Manufacturers say that the bulk of diamonds sold
domestically are .30 carats and under. Although the sales inside Russia are
slow, this doesn’t affect the prices. “Even though manufacturers are
complaining about the slow sales, none of them would consider lowering the
price even a little bit,” said Elena Galkina, who is in charge of gem purchases
for jewelry maker Russian Diamond House. Galkina further noted that while there
are no problems finding big diamonds of any color or clarity, finding quality
small brilliants can be a big challenge.
JEWELRY SALES
Jewelry sales were slow in early May due to public holidays
in most of the country, although jewelers reported that in places where the
weather was bad, sales were good.
“More expensive items are selling better,” noted Galkina. Jewelers said
classical items with stones from .50 carat to 1 carat were in demand. “People
are looking for less design and less gold when it comes to classical items with
diamonds,” said Svetlana Rakhmanina from Ekaterinburg-based Rifesta. For summer
months, with the approach of the bridal season, jewelers are banking on wedding
ring sales. “We are also getting ready for graduation time with pendants and inexpensive
rings,” said Rakhmanina. Most summer purchases are made at the New Russian
Style show, which opened May 30 in Moscow.
THE MARKETPLACE
- ALROSA sold $45.7 million worth of rough diamonds in 10.8
carats and larger through two auctions at the end of April.
- In the first auction, held in Moscow, the company offered
1,164 stones weighing 19,000 carats in 321 lots. A total of 297 lots sold for
$40 million.
- At the auction in Ramat Gan, the company sold 25 diamonds
weighing more than 500 carats for $5.7 million.
- As part of its debt reduction efforts, ALROSA paid off
$100 million of its $500 million debt to VTB Bank and refinanced the other $400
million.
Article from the Rapaport Magazine - June 2012. To subscribe click here.