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Russia
By Anastasia Serdyukova
Due to the current tough market, Russia’s largest diamond producer ALROSA decided not to increase the prices for its May trading session. The company has increased its prices by an average of 5.5 percent to 6 percent since the beginning of 2013. The most recent increase in April was very difficult for many of its clients to swallow, according to a number of industry sources. The supply for the May market session was less than in previous months due to the limited demand at the market and the seasonal complications of the production cycle. Rough sold in April and May is mined in January and February, when production declines due to freezing temperatures in the Yakutia mining area.
ALROSA also increased the share of less expensive rough in May, offering stones that weigh less and have lower-quality characteristics because current demand is greatest in these categories. This approach was initially taken in the first quarter of 2013, and it continues in the second quarter. The most popular rough stones are 1 carat to 3 carats, which are used to produce polished diamonds of .30 carats to .50 carats, the best-selling size at the moment. ALROSA also included in its first-quarter sales some less expensive rough left over from previous months that didn’t sell then but is now in demand. The company said that the average monthly sales in the first quarter of 2013 were 9.2 percent higher than the average monthly sales in the same quarter of 2012 due to increased demand in the beginning of the year. Sales in the first quarter of 2013 totaled $1.246 billion, 4 percent higher than for the same quarter in 2012. The physical volume for the quarter was 10.3 million carats, compared to 8.1 million carats year on year and 9 million carats in 2012’s fourth quarter. The company’s net profit for the quarter was $173.6 million, less than the $295.6 million for the same quarter in 2012. Rough diamond production for the quarter fell 7.5 percent year on year to 7.48 million carats.
High rough prices are putting considerable pressure on diamond manufacturers, who find it difficult to raise polished prices when sales have slowed. “There’s little activity at the market as people neither want to sell nor to buy at the prices offered,” said Alex Popov, the head of the Moscow Diamond Bourse. Two categories of diamonds are selling the best: small stones up to .30 carats, most of which are sold domestically in Russia, and stones between .30 carats and .50 carats. Demand for diamonds between .50 carats and .90 carats has fallen the most, according to Irakly Aneli of Nevsky Diamonds. He said that the most profitable rough to cut are rejections because they are not expensive but small stones still can be cut out of them. In terms of characteristics, people are either looking for something very good, such as F, VVS1, or for poor quality, such as I to L color and VS2 to SI3 clarity. But manufacturers say they have to be very careful with how much rough they buy and what quality because jewelry companies have stopped buying stones just for inventory, as they used to, and now purchase only specific stones as they need them. “Although the sales are occurring, there’s much pessimism,” said Anton Schepotiev from diamond and jewelry dealer Almoss. “Both the prices of rough and of polished are expected to rise and it will be more difficult to sell them.” The other problem for diamond producers is that people are looking more and more for other gemstones rather than diamonds. “People are tired of the white jewelry, they are looking for something original and are turning more to semiprecious stones,” said Popov. Summer also is the time of year when jewelers focus more on colorful jewelry. “Diamond jewelry sells better for the New Year season, but in summer, people want something bright,” said Svetlana Rakhmanina from Rifesta. In response, companies are assembling new collections made up of semiprecious stones. Even in their diamond collections, they are focusing on color, either by using yellow gold for the setting or colored diamonds.
Selling jewelry is also becoming a difficult task. “The market in Moscow, which traditionally bought most of the jewelry, is saturated,” said Aleksandr Fedulov of Zoloto Yakutii, “The sales in Siberia are much better.” Companies say that even though the total sales volume is at the same level as in 2012, the average sales transaction has fallen. “In retail, you reach the revenue of 2012 by selling more of the less expensive items,” said Veronika Boyarskaya from Elite, noting that the dollar value of the average sales transaction “is 30 percent lower than in previous years.” In summer, people buy wedding bands, which usually have small diamonds, and jewelry for young girls for graduation gifts. Yet, even selling these traditional bread-and-butter categories is becoming increasingly difficult. “Young people are not interested in jewelry and they give preference to electronic gadgets rather than rings,” said Flun Gumerov of Almaz-Holding. Article from the Rapaport Magazine - June 2013. To subscribe click here.
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