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Alrosa: Gokhran Sale Has Cooled Rough Prices

Aug 23, 2021 4:11 AM   By Joshua Freedman
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Rough-diamond prices have fallen by up to 5% on the secondary market since Russia’s state gem depository released a stockpile of goods last month, according to Alrosa.

The Gokhran auction on July 23 brought almost $140 million in inventory into the supply chain, easing the sector’s shortages, the Russian miner’s deputy CEO, Evgeny Agureev, told Rapaport News Thursday.

Rough has been in scarce supply in recent months, as mining output has dropped and the major producers depleted much of their stock in the first quarter. Alrosa’s July rough sales, at $318 million, were the lowest this year.

This had led to customers of large miners such as De Beers and Alrosa reselling stones at prices that were often too high to enable midstream players to profit, Agureev explained. But valuations are now around 3% to 5% lower than in late July, he estimated.

“On the secondary markets, there is a speculative situation [regarding] prices, because some of the players are ready to pay any price for goods, taking into account the reduced allocation of rough goods directly from miners,” the executive noted. “From this point of view, I think the Gokhran auction [that] happened in July was really at the right time to bring more goods to the industry and also to [demonstrate] that it’s not necessary to pay these speculative prices for goods. As a positive result, prices on the secondary market started to move to normal levels.”

Gokhran holds periodic auctions of gemstones and precious metals from state stockpiles, with the latest sale featuring just over 1 million carats of rough diamonds valued initially at $114 million. Final revenues came to $139.2 million, according to Russia’s Ministry of Finance.

Alrosa took the unusual step of buying around 70% of the diamonds by value — approximately $97 million — so it could offer more goods to its contract clients at future trading sessions. Another smaller Gokhran auction is scheduled for September.

The rough market has witnessed unusually strong demand since late 2020 as retail sales recovered and midstream players faced shortages of both rough and polished diamonds. These scarcities largely stemmed from reduced mining production, with Alrosa predicting a “new normal” of around 120 million carats in annual global rough production, approximately 20% below pre-pandemic levels.

The company’s own output has taken a hit from the deep cuts it made at the onset of the Covid-19 crisis last year, as well as from mine maintenance that took place this year, Agureev pointed out.

Lower deficit

However, the state diamond sale has reduced the gap between rough demand and availability, the executive said. While that deficit stood at some $500 million in June and early July, it has since fallen to around $300 million, he said, citing estimates from clients.

Furthermore, the miner is considering lifting its 2021 production plan by up to 5% to a maximum of 33 million carats, compared with its previous forecast of 31.5 million carats. Still, it will take time for secondary-market prices to “normalize,” an Alrosa spokesperson said.

As for its own rough prices, the miner has not decided whether it will make adjustments at its next contract sale, which begins on August 30, the spokesperson added. Alrosa’s prices increased around 7% in the second quarter compared with the previous three months, reflecting buoyant demand for rough and polished.

Appetite for both categories is likely to remain strong until the end of the year, Agureev predicted.

“From this point of view, our industry should enter 2022 in a stabilized demand-supply balance and in a very [healthy] situation,” he added.

Image: Rough diamonds. (Alrosa)
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Tags: Alrosa, Evgeny Agureev, Gokhran, Joshua Freedman, Ministry of Finance, Rapaport News, rough, Rough Diamonds, rough market, rough prices, Russia, secondary market
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