In 2012 Gokhran spent almost all its funding limit stipulated in the budget for purchases of rough diamonds procured by AK ALROSA, according to a review published by Finmarket.ru.
Sales of precious stones from the state repository amounted to RUB 2.148 billion in 2012 which is a bit lower than projected figure of RUB 2.42 billion and is attributed to slowdown at the diamond market posted in the second half of the year.
For comparison, the first half of 2011 was deemed as extremely positive for the whole diamond pipeline and following the results of 2011 Gokhran sold rough and polished diamonds worth a total of RUB 3.7 billion.
Rough diamonds traditionally accounted for the vast part of sales in 2012 – total rough distribution by Gokhran is seen as RUB 1.95 billion. Meanwhile, domestic sales of rough diamonds are estimated at RUB 1.49 billion for the above period. Prevalence of internal sales is caused by legal restrictions imposed on participants of special-sized diamond auctions (for stones weighing 10.8 carats and more) related to foreign companies.
The sole auction of special-sized rough diamonds in 202 yielded RUB 680 million. Only Russian enterprises took part in the above sale.
Meanwhile a source from Finance ministry noted that separation of domestic and external markets in this case looks to some extent simulated as many companies registered in Russia and involved in procurement of special-sized diamonds are affiliated with the leading diamantaires from Belgium, India, Israel, China and USA.
Gokhran assesses the merits of new mechanism of sales implemented at the auction of special-sized diamonds in 2012 whereby the lots were configured to include one stone per lot, following requests of the buyers. Previously lots were formed to include three stones and some companies had to purchase a lot even if merely one of the three diamonds was attractive for them. The new mechanism cuts time of preview and guarantees fair price for each diamond, the source told Interfax.
External sales of the state repository reached RUB 460 million.
Domestic sales of polished diamonds from Gokhran amounted to RUB 120 million in 2012, while export sales reached RUB 70 million. Apart from rough and polished diamonds Gokhran conducted sale of emeralds worth a total of RUB 8 million (domestic sales accounted for RUB 6 million, followed by RUB 2 million of sale to foreign buyers).
In 2012 Gokhran spent about 95% of funds, destined for purchases of precious stones and metals, for procurement of rough diamonds from ALROSA. Of the total amount of expenses for purchases of precious stones and metals equal to RUB 9.95 billion Gokhran spent RUB 9.493 billion for diamonds. Initially the state repository anticipated rough sales from ALROSA worth up to RUB 4 billion however subsequently it realigned assignations destined for precious metals procurement. ALROSA’s management has played a significant part in this decision having applied to the government for support citing the period of the global market slowdown.
However the shift to diamonds was reasonable due to some factors – Gokhran curbed platinum group metals and gold purchases in 2012.
In 2012 Gokhran effected two large-scale transactions on rough diamond procurement from ALROSA Worth over $250 million. The first purchase took place in June, 2012, and was estimated at $91 million (RUB 3.48 billion including 18% VAT). Within the above deal ALROSA shipped 464,000 carats of rough diamonds to Gokhran. The second shipment reached Gokhran premises in December and was valued at $160 million (RUB 6 billion including VAT).
As distinct from 2011, when Gokhran procured rough diamonds from independent suppliers such as Uralalmaz and Nizhne-Lenskoye (51% share in the latter was acquired by ALROSA in December 2012, following public auction), in 2012 ALROSA became the sole recipient of the budget funds.
Kristall, the largest polished diamond manufacturer in Russia planned to sell its production to Gokhran, together with ALROSA. Smolensk-based enterprise suggested procurement of polished diamonds and ALROSA’s rough stock in proportion of 20% to 80%, accordingly. However the state repository only acquired samples of polished diamonds worth merely RUB 4 million.
Plans for 2013
Rough stocks of Gokhran do sometimes invoke concerns at the market – nobody will benefit from any large-scale sale of rough stocks from Gokhran valued at $1 billion, acquired from ALROSA in crisis times. In the words of the source from Finance ministry, the probability of massive rough sales from the state repository is not considered at the moment.
Neither is concerned the issue of rough diamond sale to Indian diamantaires – the most active market players trying to lobby removal of restrictions to digest stocks of Gokhran.
Transactions with valuables from the state repository are conducted in compliance with the limit stipulated in budget bill for 2013, the official added. The law provides for RUB 10.97 billion to come to the state budget following sales of precious metals and stones in 2013. Despite depletion of stocks, palladium accumulated in Soviet times will account for the lion’s share of sales. Some experts at Finance ministry estimated palladium sales at 4 – 4.5 tonnes in 2013.
Meanwhile, decree which will enable to proceed with transaction is not yet signed by Prime Minister; therefore Gokhran is not yet in position to sell its stocks.