When market participants assess the situation at different
levels of the diamond pipeline — from rough to jewelry — they often use one of
two “s” words: stability or stagnation. Many describe the situation as very
uncertain. “One can hardly plan for one or two months in advance with
certainty, which makes running the business more difficult,” said Alex Popov,
the head of the Moscow Diamond Bourse.
The prices for rough are steady or growing slightly.
Russia’s largest diamond miner ALROSA said there’s “moderate growth” of rough
prices, which is likely to continue for the second quarter of the year.
According to the company, prices are being driven by growing demand for
polished in China, India and the U.S. The company sold $1.2 billion worth of
rough in the first quarter of 2012.
A HISTORIC HIGH
ALROSA is set to pay its highest dividends ever — $250
million — for 2011, a record year for the company in both production and
profitability. The company is required to allocate at least a quarter of its
profits to paying dividends if more than half of the company is owned by the
state, unless it adopts its own dividend policy, according to Russian law.
Diamond sales in 2011 totaled $4.45 billion, an increase of 28 percent from the
previous year. The payout is four times the dividends paid for 2010.
Manufacturers and dealers say that the situation with
polished sales remains steady, but complicated. “There’s no particular tendency
— there may be growth for one category of polished one day, but the next day,
the same category won’t be selling,” said Valery Morozov, director general of
Ruis Diamonds, which sells most of its product outside the country. Domestic
sales for many companies have shown either no growth or a decline over March
and April.
“There are two main factors that are having an impact on
demand: seasonality and slow retail sales of diamond jewelry,” said Anton
Schepotiev of diamond dealer and jewelry manufacturer Almoss. Jewelers say that
finding a good deal in polished is easy. “The prices for the polished we buy
fell around 10 percent over the past two months,” said Aleksandr Chamovskikh,
director of Ekaterinburg-based Carat, which makes medium-priced and upscale
diamond jewelry.
NO MOVEMENT
The demand for diamond jewelry is stagnant, according to
most companies. “The market is at the level of 2011,” said Fyodor Poludenny of
Estet, one of the largest jewelry makers in the country. Companies report that
the average sale either stayed at the same level as 2011, or fell slightly.
“Many retailers, apart from those who are selling wedding rings, have seen
declining sales,” said Veronika Boyarskaya from Moscow jewelry factory Elite.
This is due both to a seasonal reason — April is a month when many people go on
vacation — and uncertainty over the financial situation in Europe and over who
will form the Russian government after the new president and prime minister
come into office in May.
The increase in gold and diamond prices worked to the benefit
of companies that make mass-production jewelry. “Because of the price increases
in materials, the share of labor costs declined, so Russian-made jewelry became
more competitive against imports from India and China,” said Chamovskikh. Yet
he noted that competition from imports had increased significantly in the
upscale and luxury segment.
Popov said that Russia’s purchasing capacity is strong, so
the country’s market is becoming more attractive for foreign companies. Bright
colors are dominating the design of the jewelry. “The items with big, bright
stones surrounded by diamonds are in demand,” said Poludenny, noting that such
designs match bright summer clothing collections. Boyarskaya said bright
colors, rose-shaped jewelry and mother-of-pearl are the trends for summer
collections.
RUSSIA-INDIA RELATIONS
Russian jewelry makers and dealers met the leading Indian
manufacturers during the first Russia-India Diamond Summit in Surat in April.
“Russian companies are buying Indian polished diamonds, so this was a chance
for them to establish direct contact,” said Popov. Russian jewelry makers are
looking for diamonds of less than 30 points in India, as those are rarely
polished domestically. “The experience of Indian manufacturers is very
important to us because our Yakutian polishing industry is only 20 years old,”
said Valery Fedorov, director general of EPL Diamond.
But when it comes to rough, the relations between Russia and
India are tense. The Russian Association of Diamond Manufacturers (RADM) was
outraged after India’s Gem and Jewellery Export Promotion Council (GJEPC)
reportedly asked for direct supplies of rough from Gokhran, Russia’s state
treasury. The treasury denies such an arrangement could happen. But it’s not
the first time India’s representatives were accused of suspect moves.
Manufacturers say Indian companies are following excessively aggressive
politics when it comes to Russian rough. “Sometimes they offer such high prices
for rough at Gokhran auctions that they can’t be justified from an economic
point of view,” said Morozov.
THE MARKETPLACE
- ALROSA’s net profit was $281 million in the first quarter
of 2012, 40 percent higher than forecast and 23 percent higher than first
quarter 2011.
- Around $103 million worth of stones were produced by Yakutia’s
EPL Diamond in 2011.
- Russia’s largest manufacturer Kristall Smolensk increased
its revenue by 38 percent to $468 million in 2011, while its net profit was
$9.7 million, 1.5 times higher than in 2010.
Article from the Rapaport Magazine - May 2012. To subscribe click here.