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Alrosa Shifting to Tailored Rough Contracts

Nov 25, 2021 5:04 AM   By Rapaport News
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Alrosa has released plans for a De Beers-style rough-supply regime that will see the Russian miner offer a more bespoke selection of goods to different customer types.

“The market needs a new model of long-term agreements in [the] rough-diamond trade to help withstand external shocks,” Alrosa deputy CEO Evgeny Agureev said in a statement Wednesday. “The key distinction of this new system is its division of contracts and goods depending on the client’s business activity. We [are giving] special priority to creating added value at all stages of a diamond’s journey.”

The company will operate three different contracts for three client categories — manufacturers, dealers and retailers, Alrosa noted. The system is set to go into effect for the next three-year supply period running from 2022 to 2024.

While Alrosa initially planned to introduce a new contract period this year, the pandemic forced it to extend the existing system through December. This allowed clients to work out their sales and purchase strategies and draw up forecasts of their future rough demand, the company explained.

In addition, “continuous open dialogue” between management and clients in recent years has helped Alrosa sharpen its understanding of customers’ needs, enabling it to provide highly targeted supply, it added.

Previously, purchase history was the key factor determining the contracts long-term customers received, the miner explained. De Beers also operated a similar system, known as “demonstrated demand.”

However, the two miners’ methods of selling large boxes of rough to contract customers has faced criticism for encouraging dealers and manufacturers to buy goods they don’t want in order to secure the desirable items. This has left the trade with unsellable inventory and creates problems with banks.

Earlier this year, De Beers moved to a more tailored system in which cutters, dealers and retailers receive allocations that are more specific to their needs. De Beers also introduced incentives for sightholders to manufacture their own rough rather than resell it and reduced its emphasis on demonstrated demand.

Alrosa sells most of its rough through its long-term supply program, known as the Alrosa Alliance, holding monthly trading sessions. The company will publish an updated client list next month, with the new contracts becoming effective from the January 2022 sale.

Image: Rough diamonds sorted into categories. (Alrosa)
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