Export volumes to key markets fall
By Evgeny Zainullin
(kommersant.ru) - Russia has reduced exports of diamonds to key markets - India and Europe. Sanctions imposed on ALROSA allow it to supply rough diamonds to India, but there are problems with payment. The restrictions exacerbated the already existing shortage of diamonds in the world market, so that the drop in incomes of Russian producers was largely offset by rising prices. At the same time, analysts are confident that problems with transport and financial logistics will eventually be resolved and a serious drop in ALROSA's production should not be expected.
Russian diamond mining companies are losing export volumes, but do not lose in the proceeds from the sale of rough diamonds, as follows from the statistics of the largest importing countries, which Kommersant got acquainted with. According to the Ministry of Commerce and Industry of India (the world's largest market for rough diamonds, with 90% of stones being cut there), imports of non-industrial rough diamonds, from which polished diamonds are made, amounted to 209 000 carats in March 2022, which is half as much as in March 2021. From January to March, Russia supplied 718,000 carats to India against 1.3 million in the same period last year. At the same time, in value terms, the imports in March increased by 27%, to $78 million.
Deliveries of Russian diamonds to Europe in March also decreased in carats, but not in value. According to Eurostat, Russian imports to the EU (Belgium) amounted to 1.5 million carats, three times less than in March 2021. However, the value of all imports in March is €185 million compared to €162 million a year ago. ALROSA, which accounts for 27% of global and 95% of Russian diamond production, does not publish sales data.
ALROSA is included in the EU, US and UK sanctions lists. The US has officially banned the direct import of Russian gems. However, as explained by the US Office of Foreign Assets Control (OFAC), the import of diamonds processed in other countries is not prohibited.
India does not support sanctions against the Russian Federation, but difficulties arose with payments. According to Bloomberg, Indian traders discussed with ALROSA in April how to buy rough diamonds, including the currency of payment: rubles or rupees.
The sanctions have exacerbated the shortage in the global diamond market.
Analysts at Bank of America are forecasting a 15% rise in prices amid strong demand and falling supply. Another major market player, De Beers, is limited in production growth, so prices, according to analysts, may continue to rise.
The prices for rough and polished diamonds have fundamental support due to "objectively limited supply", confirms Boris Krasnozhenov from Alfa-Bank. There have been almost no new deposits with an attractive economy and a stable level of diamond output for the production of investment-grade diamonds over the past 20 years in the world, the expert explains, while a number of large mines (for example, the Argyle mine in Australia) have closed.
“According to our estimates, ALROSA's gem-quality diamonds tend to be priced at $180 per carat, which is 25–30% higher than last year,” Mr. Krasnozhenov clarifies. “Rapaport's indicative prices for 1-carat and 3-carat diamonds went up by 9-11% in the first four months of 2022. In 2021, 1.3 and 5-carat diamonds have risen in price by 17-19%.”
At the same time, the drop in sales in volume terms in March, according to Boris Krasnozhenov, is largely due to the high base of the first quarter of 2021, when ALROSA sold off stocks accumulated during the pandemic in 2020.
“It can be assumed that sales in the second quarter fell slightly due to problems with payments and logistics,” the expert admits. “However, these are temporary problems that have solutions anyway. We see the potential for growth in diamond prices and do not expect a significant reduction in ALROSA's production.” The demand for investment diamonds is also growing in the world, Mr. Krasnozhenov adds, which provides additional support for the industry.
