“The market reminds one of a patient in an intensive-care unit, who is slowly recovering and can now slightly move his fingers and toes,” said Nikolay Afanasiev, Kristall Smolensk’s deputy director for marketing. Although market participants are cautious in announcing their expectations or making predictions, the general mood is that things may start looking better for companies, be they manufacturers or jewelry makers, who hold to their positions and continue production.
Afanasiev said most companies have been working to meet their loan obligations and to get rid of inventory. Meanwhile, the market has become very selective and Afanasiev said prices have stabilized a bit and have passed their lows.
Kristall Smolensk’s recent sales have grown monthly, from the lowest point reached early in 2009. Afanasiev said the company has managed to avoid stopping production, a move taken by many small manufacturers throughout Russia. “We expect that we will manufacture 30 percent of 2008 volume this year,” said Ararat Evoyan, vice president of the Russian Association of Diamond Manufacturers. “The concern is that not all companies that stopped production will be able to restore production levels and hire back the specialists.”
ALROSA Production Down ALROSA has reduced its production forecast for 2009 by 21 percent. In early April, the company’s executive board forecast 2009 production at $1.9 billion, down from the December 2008 forecast of $2.4 billion. The company doesn’t break down its forecasts by carats, so it’s unclear if the reduction is the result of real production cuts, or of the falling rough prices and dollar exchange rate. The company projected sales at $2.1 billion for the year, down from the $2.7 billion projected earlier, and net profit at $65 million, a 42 percent drop from December projections.
ALROSA said earlier it would continue its geological exploration, budgeted at $96 million, as planned. The company’s representative also said some of its manufacturing division employees, as well as workers at some open mines, might be asked to reduce their work hours and pay by one-third to avoid layoffs.
The company has raised its 2008 production estimates to $2.4 billion from the $1.8 billion announced in December. Sales estimates also have gone up, from the $2.33 billion announced in December to $2.93 billion announced after the April board meeting. But net profits for the year were estimated at $113 million, down from $423 million projected earlier.
Gokhran AuctionGokhran, Russia’s state treasury, sold $4.5 million worth of rough diamonds larger than 10 carats to five Russian companies at a recent auction held in Moscow. The 43 lots sold contained 2,161 carats. The buyers chose from 197 lots weighing 12,136 carats. “The results of the auction are not that bad, if compared to the slow activity going on at the market,” said Evoyan.
Meanwhile, ALROSA asked the Finance Ministry to “stop rough diamond sales from Gokhran and to stop the competitive trade in diamonds bigger than 10.8 carats” in a mid-April letter from Sergey Vybornov, ALROSA president, to Finance Minister Alexei Kudrin. ALROSA representative Andrey Polyakov said “Forecasts show the market will start recovering soon and it is important nor to spoil the tendency with rough oversupply to the market.”
In an effort to shore up the diamond industry during the global economic downturn, Gokhran estimates it could spend more than $1.3 billion in 2009, buying up diamonds and gold from ALROSA and other Russian miners. It already has spent $170 million more than it had budgeted and three times what it spent in all of 2008.
BaselThree Russian jewelry makers exhibited their products at BaselWorld 2009.
“Those companies who came to Basel invested much more in the exhibition than in previous years to confirm their positions at the high end of the jewelry market,” said Maksim Voznesensky from Jewellery Theatre. Participants and attendees at the show said that there were much fewer people this year, yet certain collections managed to attract crowds. “Retailers were most interested in well-known designs, or absolutely new designs that would attract customers,” said Maksim Strezhnev, director general of Rifesta. Voznesensky said the price of items reflected not only the design, but also the quality of the stone.
Demand at Both EndsKristall Smolensk, which sells most of its product outside Russia, reported little demand for gems over 2 carats, according to Afanasiev. Inside the country, the sales of high-end stones has always been smaller than for Europe and the U.S.
Russian jewelers have varied opinions on the quality customers are looking for. “Those who can afford diamonds are looking for better characteristics, such as F to G and VVS1 to VVS2,” said Pavel Sydorenko from Adamas. “People are looking for high characteristics as they want to make an investment,” said Strezhnev. “Yet, demand is also growing for stones with poorer qualities, even up to SI, because purchasing ability is going down.”
The Marketplace• Jewelry sales are 30 percent lower on average compared to 2008.
• In the low-end segment, sales of items smaller than 0.3 carats fell sharply, as people chose more items without any stones at all.
• In the high-end segment, demand is strong for items with melee.
• Demand is best for stones between 1 and 1.99 carats.
Article from the Rapaport Magazine - May 2009. To subscribe click here.