ALROSA: Polished Diamonds Are Rising in Price

The first half of 2012 was an extremely challenging period for diamond mining companies – the market was overheated, Indian diamond cutters exhausted their credit resources and were dumped due to Indian rupee depreciation – which resulted in a drop of global sales volumes. Meanwhile, revenue of Russian diamond mining company ALROSA has exceeded $2.4 billion in the first half of 2012 and is expected to attain $4.5 billion following the results of 2012, RBC Daily reported.
In the first half of 2012 ALROSA posted sales of diamond production having risen by 9.6%, year-on-year basis, to over $2.4 billion – according to materials in possession of RBC Daily, prepared to the Executive Committee Meeting scheduled today. Subject to preliminary data, the revenue from sales of rough diamonds increased by 10.4% to $2.4 billion despite 10.2% year-on-year decline in volume to 17.16 million carats of rough diamonds.
The company succeeded in expanding its financial figures owing to positive dynamics of rough prices and sales of higher quality diamonds for the period in report. Prices for jewellery quality diamonds of ALROSA saw an increase by 13.7% to an average of $195 per carat, compared to the relevant period in 2011. However since the inception of 2012 the average rough price per carat has dropped by 8.2%.
Recession of diamond sales emerged since March, 2012 and was attibuted to drop of demand and rough prices at the major global diamond markets (Israel, India, Belgium), according to ALROSA’s data.
“A strong drive of diamond prices in 2010-2011 caused development of speculative mood at the market,” – said Leonid Tolpezhnikov, Head of Analysis at ALROSA. “Many diamantaires used to proceed with further rough procurement at peak prices, using their credit resources, and in the middle of 2011 we could see liquidity deficit at the market, especially in India.”
Moreover, India faced serious internal problems – the rate of rupee turned to rapid declines. On the other side, when polished diamond prices were on the rise many jewellery producers modified their product designs to use less expensive precious stones. “In particular, watch industry shifted to use smaller polished diamonds. Nowadays European and Indian consumers avoid buying goods of top premium quality,” – Tolpezhnikov noted.
“Indeed, India accounts for up to 70% of the global rough diamond purchases and even slight fluctuations of rupee rate do affect on the global diamond market,” – Sergey Goryainov, expert of Rough&Polished agreed. The expert added, that there is stability seen at the markets oriented at premium segment production – import and export volumes of Israel are similar to the relevant figures of the previous year, while US market even sees an upward trend.
Downward trend retained at the market in July through August – ALROSA complained. “But we do not observe a dramatic drop similar to that seen in 2008,” - Leonid Tolpezhnikov expressed his upbeat mood. “Despite tight liquidity issue which remains topical in India, there is no bankruptcy wave, hence, in general the industry is relatively stable.”
The company believes that the bottom point of the market recession has passed – the recent statistics from EU and India show gradual revival of the markets and recovery of turnover. Following the results of 2012 ALROSA projects diamond production sales worth about $4.5 billion. Sergey Goryainov suggests a more moderate figure – about $4.2 – 4.3 billion, which is still “close to record highs for the company,” – the noted.