RAPAPORT... As 2008 came to its close, Russia’s ALROSA lowered its projections of diamond production for the year. Due to the adverse impact of the global financial crisis, the company said 2008 diamond production would total $1.79 billion, down from its September forecast of $2.28 billion. The expected 2008 production is almost a quarter less than the production in 2007.
ALROSA also adjusted its sales forecast downward to $2.33 billion, from more than $3 billion, as projected in September. The company’s sales fell 30 percent in the final quarter of 2008 from previous quarters, according to Vedomosti, the Russian daily. ALROSA’s representative told the newspaper that there were no sales in December 2008. The company also slashed its net profit expectations sevenfold.
Despite the fact that expectations for 2008 were lowered, the company’s forecast for 2009 shows improvement. Diamond production is expected to hit $2.36 billion, sales are forecast at $2.68 billion and net profit is predicted to increase 2.7 times over 2008 numbers.
ALROSA has been included in the list of 295 companies to receive financial support from the Russian government. The aid will come in the form of government loans, subsidies to pay interest on loans, restructuring of debts, government orders and customs tariff measures.
In other positive news, ALROSA has reached the ore body at its Mir diamond pipe half a year ahead of schedule. The construction of an underground mine is currently underway at Mir, with the capacity of the first stage of the mine measured at 165 tons. Despite the difficulties caused by the current financial crisis, ALROSA said it is still planning to increase its spending on the underground mine construction by $30 million in 2009.
Polished sales
January is traditionally a slow month for business activity in Russia due to the extended ten-day New Year holiday. But market participants say they do not expect much trading activity for the rest of the month either, due to the recession. Many jewelry makers are still working with polished gems bought several months ago.
“We are not planning to buy more diamonds until we realize what will be going on with the market in the coming months,” said Dmitry Gavrilenko, the head of the sales department of the Moscow-based factory Estet. Since sales are currently low, manufacturers are limiting their production. “We had to stop manufacturing for a while and are selling the gems that we have in stock,” said Aleksandr Boguslavsky, the chairman of the Grace group of companies, which is involved in both manufacturing and jewelry making. “A few sales with small sets of rough sold at discount were planned for late January, but many companies are still sitting on their stocks,” said Alex Popov, the president of the Moscow Diamond Bourse.
Christmas sales
Jewelry retailers said Christmas sales were down by as much as 20 percent from 2007. Although year-end statements are not out yet, companies do not expect any overall growth in numbers from 2007, due to the slump in sales in the final quarter of 2008. “During this holiday season, the number of checks was the same as last year, but the money value of each check was much lower,” said Flun Gumerov, president of Almaz-Holding. Meanwhile, Gumerov said, sales of silver jewelry have increased. Several jewelry makers have moved their production facilities from Moscow to other regions to cut down on expenses.
In early February, jewelry makers gather in St. Petersburg for Junwex 2009, the first big trade show of the year. “Junwex will show the real picture of the market,” said Olga Mironova, director general of RosUvelirExpert, which provides media support for Junwex. However, expectations are low among jewelers attending the show. Although the number of participants increased by 10 percent against 2007, some participants reduced the size of their exhibits.
Protective measures
The Russian Jewellers Guild has called on the government to pass measures to protect domestic production during the current recession. The suggestions include raising import duties on jewelry from 20 to 30 percent. “This measure won’t affect high-end jewelry makers, but it will be a barrier for cheap jewelry” coming into the country, said Valery Radashevich, the guild’s president. At the same time, “we need to cut down import duties on gems and equipment, so that Russian jewelers can work in the same conditions as their foreign competitors.” said Gumerov.
Grib deal terminated
De Beers subsidiary Archangel Diamond Corporation (ADC) has terminated an agreement, signed in April 2008, to invest in the Grib diamond pipe, along with Russia’s Lukoil. The deposit — believed to contain $5 billion worth of rough — is one of the biggest undeveloped kimberlites in the country. ADC, which fought for ten years to participate in the project, was able to legally withdraw from the agreement because two conditions, including government approval, were not met before a set date and because of worsening economic conditions. An ADC representative said the decision was driven by shareholder interests, but added that the company is not planning to abandon the project. No further details were given.
Marketplace
• Russian jewelers consumed 3.2 percent
less gold and 31 percent more silver in 2008 compared with 2007, according to
the Russian Assay Chamber.
• The chamber stamped 43.57 million golden items in 2008, which is 5 percent fewer than in 2007. The number of silver items stamped increased 25 percent.
• The Assay Chamber stamped 30,040 platinum items, which is 28 percent more than in 2007.
Article from the Rapaport Magazine - February 2009. To subscribe click here.