For the global diamond industry Russia is primarily a source of mining, which means ALROSA, the diamond miner accounting for over a quarter of the world's diamond production. In the field of diamond cutting, according to various estimates, Russia’s share ranges from 4% to 7% of the market, which exceeds $ 19 billion. And this share is steadily declining due to high manufacturing costs. The main reasons behind this process are higher wages in Russia compared to India and the 18-percent VAT on purchased rough.
Low profitability in diamond manufacturing has also a global rationale, which is the lack of correlation between rough and polished prices due to the fact that much of the rough supply is used for speculation, not for manufacturing polished diamonds. If you recall that this problem has become one of the main contributors to a sharp downturn in the diamond market in 2015, you begin to realize that the true significance of the diamond cutting industry, including that in Russia, is beyond its weight relative to the world market. A healthy and stable diamond cutting industry is a guarantee of steady demand and an indicator of jams-free traffic in the "diamond pipeline".
We have tried to collect all available data on financial and operating results produced by Russian stakeholders in the diamond manufacturing sector. Yakutia’s diamond cutting companies will be reviewed separately. Diamond manufacturing companies are not public here and provide minimal information about their activities and their results are not disclosed by any industry associations. Because of this, the latest data we have is for 2014, which was one of the most successful years in the industry (at least for the upstream) after the crisis of 2008-09. This is the year, which may serve as a benchmark in defining the depth of the fall triggered by a new crisis in the current year of 2015.
Key performance indicators of diamond manufacturers in Russia in 2014, outside of Yakutia
In 2013 (there is no more recent data, but there are also no reasons to speak about a sharp change), Russia accounted for 4% of the world’s diamond manufacturing market, the total value of which was $ 19.5 billion. Russia’s manufacturing sector gained $ 705 million in sales revenue having produced 707,000 carats of polished goods.
The share of Russia, which is a leader in diamond mining both in terms of value and volume, is, however, small in diamond manufacturing due to high costs in this sector ranging from $ 40 to $ 160 per carat compared with $ 40 in India, $ 45 in China, and $ 100 in Belgium. Note that these indicative data taken from ALROSA’s reporting are dated back to August 2014 and since that time the ruble-denominated costs carried by domestic manufacturers have obviously decreased, but all imported goods turned more expensive and most importantly rough diamonds priced in U.S. dollars.
In 2014, the top five diamond manufacturers in Russia by key financial results (revenue and gross profit) included Smolensk’s Kristall, Ruiz Group (except Ruiz Diamonds, which includes Yakutia’s Tunalgy), Brillianty ALROSA, which is subsidiary of ALROSA, Yakut Diamond Company and Choron Diamond.
Brillianty ALROSA does not disclose its financial results, while the performance data provided by Orel-ALROSA and Kristall Factory in Barnaul cannot be viewed as representative since they do not take into account the results of the Moscow-based company, which is inseparable from ALROSA. We can assume that the revenue earned by Brillianty ALROSA is included into the “Other” account entry of ALROSA for 2014 or in other words it is the difference between the total revenue (RUB 207.159 billion) and proceeds from the sales of diamonds (RUB 184.065 billion), as well as natural gas, social infrastructure and transport (totally to the tune of RUB 16.7 billion). In this case, ALROSA’s branch posted polished sales close to RUB 6.4 billion. This is 3% of ALROSA’s consolidated revenues under IFRS in the past year.
During the first 9 months of 2015 Brillianty ALROSA has increased its sales (or proceeds in the “Other” account entry within the consolidated revenue statement under IFRS) to RUB 4.82 billion, up 9%. The total sales revenue generated by ALROSA went up by 17%.
Key performance indicators of diamond manufacturers in Yakutia in 2014 (13% of total polished production in the Russian Federation)
All the Yakut businesses accounted for 13% of the Russian manufacturing market in 2014 (according to the data from Yakutia’s program “Development of diamond cutting and jewellery industry in 2015-17).
Yakutia’s diamond manufacturers received $ 317.6 million worth of rough in 2014, which is 10% above the 2013 level. YaPTA AK ALROSA accounts for 92% of these supplies.
Polished production in Yakutia used $ 208.2 million worth of rough (56.5% of available rough including the amount left over from the previous year). Yakutia’s sales of rough reached $ 109.1 million (29.6% of the total), which is 35% higher than in 2013. Of this amount 16% was sold outside the Russian Federation.
Yakutia’s diamond cutting companies produced polished goods valued at $ 225 million in 2014, which is 1% up compared with 2013.
In 2014, diamond sales decreased by 4.4% to $ 235.3 million, of which 49% was sold overseas, 26% in the Russian Federation domestic market outside Yakutia and 25% in Yakutia.
Yakut Diamond Company (OOO Yakutalmaz Company) was Yakutia’s largest diamond manufacturer in 2014 accounting for 28% of the total sales of polished goods produced in this republic. The company also controls Tuymaada Diamond, which has its own jewelry network and which was purchased in 2012 from the authorities of Yakutia. At the end of 2013, Yakut Diamond Company became a long-term customer of ALROSA, but a year later left the ALROSA Alliance. According to market sources, the company failed to fulfill its obligations regarding the purchase of rough diamonds due to financial problems, including the devaluation of the ruble. According to Yakutia’s media, the company’s loan payable in the middle of 2015 exceeded RUB 1.7 billion. Its creditors include Sberbank (which filed for the bankruptcy of Yakut Diamond Company), Gazprombank, MFK, Transcapitalbank, Almazergienbank and Taatta Bank. At the end of June this year, Yakut Diamond Company filed for bankruptcy protection to the Arbitration Court of Yakutia.
Sergey Bondarenko for Rough & Polished
