Maxim Shkadov, General Manager, OAO Kristall:
During the recent two or three years, the major part of diamonds just made their trips around the world from safe to safe never reaching the real manufacture. Today the world’s rough diamond market remains speculative as it was before, which affects polished diamond manufacturers around the world. The situation got absurd when rough diamonds outstripped polished diamonds in price. Currently, to make polished diamonds from rough diamonds unequivocally means losses and the only question is who and what losses is going meet. Presently, the world market is almost overstocked – it has never been in such a situation. Problems will come when dealers who accumulated very large rough stocks for profiteering will start to “dump” these goods. This may plunge the market into chaos.
While the world market of rough diamonds has sagged, the market of polished diamonds is holding ground, although its turnover has sharply decreased. Under the financial crisis, diamond cutting and jewelry factories experience liquidity problems. First of all this is true for India, which is the world leader in polished diamond production. Now this Indian “bubble” is about to burst and this may trigger a rather important chain – diamond rough producers will find it hard to sell their goods, which is virtually happening, and this may fling the market into a tail spin so that it will be difficult to say who will be able to stop the dive. Only if De Beers will undertake to buy back at a reduced price just to balance the situation somehow. But it’s highly questionable whether this company will do it.
Russia is the only unique country simultaneously possessing diamond output and cutting capacities. However, having over 20-percent influence on the market in rough, it has at least 5 percent in polished diamonds. The state policy should be aimed at developing a correct relationship between the diamond mining company and diamond processing company, especially now, in the financial crisis environment. But unfortunately, the state policy has not been so far established for any sufficiently long period of time and we have yet quite a lot of problems.
Besides, there is an unsolved problem related to VAT reimbursement. The state refunds the VAT levied on goods produced for export within 9 or 10 months. These funds are working capital needed for production, to buy diamonds, but they are actually frozen. In other words, there are a lot of problems accumulated even without the crisis. The latter has just worsened the general situation.
Valery Morozov, General Manager, Ruiz Diamonds:
The crisis has affected polished prices, but not to the extent of rough prices. At the current U.S. dollar rate, diamond cutters could feel themselves much better if not for insufficient market liquidity. Recently, there was panic demand for rough – very often rough was bought to be resold tomorrow at a higher price. Sometimes, this pushed rough prices higher than polished. Today the market got sober being left by speculators who got just busted. Now the market is run only by companies which are really engaged in diamond cutting. However, it has been overheated and companies lost their current assets, so that now they cannot buy rough because of money shortage. Hence it is important to restore market liquidity.
On the whole, the picture remains rather trying even despite some revival and upswing in the market in recent weeks. But so far we have to look for cheap financing and cheap rough, tightening our belts and waiting for improvement. It is evident that those who will weather it out will win the game due to a lesser number of players left on the market.
Now it is difficult to say what market segments will wake up to polished sales. I don’t think that fancy-cut diamonds will be of current interest to the market. So far the segment of small goods suffered least of all since it is more liquid due to its higher turnover. Classic round-cut diamonds of one carat in size and above will also be most likely in demand. But I would like to repeat it that virtually it is impossible to give any forecasts since under this economic environment it would look like astromancy trenching upon quackery.
Dmitry Scherbakov, Deputy General Manager, Trading House Grace-D:
In the period from October to December 2008, our sales remained stable and we did not change prices despite another significant hike in prices for some types of rough in August of the same year. In October 2008, rough prices reached their peak within ALROSA's offering and exceeded average world prices by 25-30%. During this period the Grace Group did not buy any rough and mainly processed the remaining stock held by its factories. In this connection, our company had to close two out of three factories in the first half of 2008 – OOO Tropical Star Diamonds in Moscow and OOO Russkaya Manufactura in Yegoryevsk. During the second half of 2008, OOO Veres based in Kineshma was processing raw materials owned by Brillianty Alrosa and selling them through the Grace-D Trading House and only because of this managed to hold out in that period. Starting from January 1, 2009, OOO Veres was mothballed and its personnel downsized. Totally, about 250 people were laid off.
Nevertheless, speaking about consumer mood, we believe that diamonds will always be sought after in some assortment and quantity. In the nearest months, demand is sure to go further down. We think it is incorrect to give any longer-term forecasts. We are sure that the diamond cutting sector may be helped first of all by canceling the VAT levied on rough diamonds and by correcting prices.
Gagik Kocharyan, Chief of Department for Trade Policy Management and Domestic Market Regulation in the Ministry of Economy of Armenia:
So far it is early to give any opinion about any influence of the world financial crisis on gem cutting and jewelry manufacturing, although its state is of course not as it used to be earlier. Consumer demand for jewelry has decreased since it depends on general wellbeing of the population.
Armenia is among the top ten countries engaged in production of polished diamonds and is famous for its high quality cutting. Jewelry was in the second place on its export list and accounted for $250 mn every year. Diamonds and jewelry pieces belong to the field of things which find a ready market among the well-to-do. However, today diamonds attract not so many people – no one is eager to buy jewelry during the crisis.
As is known, last year ALROSA supplied 5,000 carats of rough natural diamonds to five Armenian cutting factories under a signed agreement. The stones were bought in September-October 2008, which brought about a slight increase in production and export of polished diamonds from Armenia in that period. ALROSA’s experts visited the republic and examined the capacities of other Armenian cutting factories, which increased the list of partners from 5 to 12. But due to the global economic crisis the company stopped its sale of diamonds to traders as early as December 2008 and rough diamond supplies from Russia ceased. So far it is difficult to say whether they will be renewed in 2009 because the Armenian factories have to sell their finished goods on their own.
So far we do not want to give any outlooks. Foreign investments into Armenia’s jewelry industry are improbable in the nearest future. However, together with our private sector we are developing a program of measures to support the industry and alleviate the influence of the world economic crisis. There are several jewelry enterprises – Agates, Daimotec, the Yerevan Jewelry Factory, and Lori – on which we stake and hope that they will be able to procure necessary rough materials and continue their operation.
