Russian diamonds: adding sparkle

Alrosa, Russia’s state diamond producer, has held back rough diamond supplies this year in a bid to shore up sagging world prices for luxury sparkling gems. With no end to the downturn in sight, the company is taking a new tack, securing long term diamond sales contracts with global jewellery retailers willing to guarantee purchases even in challenging times.

Alrosa signed a three year agreement with Laurelton Diamonds, the Belgian subsidiary of Tiffany & Co of the US last week to sell rough diamonds to the world’s most famous luxury jewellery retailer. Living up to its reputation for secrecy, Alrosa did not disclose the value of the deal, which was said by diamond market watchers to be worth around $60m.

“Alrosa’s policy is to conclude direct, long-term contracts with big companies involved in the production without intermediaries of end-products including polished diamonds and jewelry,” Fyodor Alexeyev, president of Alrosa, said in a statement.

“Signing a long term contract will allow us to put our cooperation on a constant footing and increase diamond supplies to Tiffany’s.”

The agreement came two weeks after Alrosa entered a long-term supply agreement with Chow Tai Fook, China’s leading jewellery maker, which polishes diamonds at its own facilities in South Africa and China. A link up with Chow Ta Fook will provide Alrosa with a foothold in the fast-growing jewellery market in China, where diamonds have become the must-have accessory for brides at luxury weddings.

However, growing Chinese demand has not been enough to offset sluggish diamond sales elsewhere in the world this year. Rough diamond prices, after increasing by an average 24 per cent in 2011, are expected to grow no more than 4 per cent in 2012.

In a move to shore up sagging prices , Alrosa sold an estimated $130m worth of rough diamonds to Gokhran, Russia’s state metals and gems repository, in the second quarter of 2012, removing supplies from the world market.

Looking ahead, Alrosa said its sales of rough and polished diamonds would reach $4.5bn in 2013, showing little change on an estimated $4.59bn worth of sales in 2012. The company expects world rough diamond demand to remain unchanged in early 2013 with the prospect of a return to growth later in the year.

Long-term contracts with Tiffany’s and Chow Tai Fook are not an answer but will provide some stability. Links with the world’s most famous jewellery brands will help polish up Alrosa’s international image, as the Russian company grooms for an expected privatisation in the year ahead.

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Russia privatisation: one step forward, beyondbrics
Russia: Eyes on the prize, FT