Frost&Sullivan, which provides customer-dependent market research and analysis, said that the Russian diamond market is nearing its maturity stage and is likely to follow the GDP growth of 4 percent.
According to the U.S.-based consultancy, the total market embracing sales of rough, as well as cut diamonds in Russia is forecast to grow at 3.7 percent annually to reach $5.74 billion in 2015. The figures were released during the online briefing, ‘Will Russia Continue to Dominate the Global Diamond Market?’ held by the company’s analyst Monika Nowotnik and attended by Rough&Polished on February 8.
Among the factors enhancing the Russian diamond market Frost&Sullivan mentioned increasing domestic demand from the jewelry industry, as well as from the machinery industry, higher demand for diamonds as hedge assets, developing mining technologies and government support for ALROSA, the largest Russian diamond miner.
“On the other hand we can see that despite these strong drivers substantial restraints affect the Russian diamond market,” Monika Nowotnik noted pointing to such barriers as lack of high-grade discoveries leading to limited supply, environmental and safety concerns, extremely harsh working conditions and synthetic diamonds. “The most important driver in future will be growing demand, whereas the most important restraint will be limited supply. This will lead to market imbalance, deficit and rising prices,” she said.
According to Frost&Sullivan, the Russian diamond market is nearing its maturity and its pace of growth strongly depends on the country’s economic growth and economic cycles with repetitive downturns. The situation in some of the countries of the European Union is uncertain with their growing debt and aging population, the agency says, which may also have repercussions on the diamond market.
“But the Russian economy is perspective and is likely not to follow the European downturns. In comparison with the majority of the countries in the European Union, all the other developed countries like the United States or Canada, Russia is presenting great economic strength, higher GDP growth, which is likely to support the Russian diamond market.”
Analyzing the diamond market segments in Russia, Frost&Sullivan forecasts an annual 4.4 percent growth for the diamond cutting industry, which is “able to generate higher margins and bring higher revenues” and presents potential due to the developing jewelry industry in Russia. Its share is expected to increase in the forecast period from 30 to 32 percent. Although the mining segment is well-developed and accounts for the majority of market revenues its share is likely to decrease in the forecast period from 70 to 68 percent, according to the analysis.
The report says the Russian cutting segment is medium competitive as Kristall and Brillianty ALROSA belong to the State. The third largest company in the market segment is Ruis Diamonds belonging to the Ruis Group which owns also diamond miner Uralalmaz.
The mining segment in Russia is a state monopoly with a 96.8 percent market share owned by the state mining company ALROSA and two other smaller market players mining mostly alluvial deposits – Nizhne-Lenskoye and Uralalmaz. However, there is a chance that this market will be slightly more competitive in the future as ALROSA plans its IPO in the end of 2012 and it is going to sell around 10 to 20 percent of its shares.
Vladimir Malakhov, Rough&Polished
