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ROUGH DIAMONDS

RUSSIAN DIAMOND PRODUCER REPORTS LOWER SALES IN 2019, AND UNCERTAINTY ABOUT WHAT TO EXPECT IN 2020

 

Alrosa, state-controlled Russian diamond mining company that is the world’s largest producer of rough diamond, has reported that revenues in 2019 fell 21 percent drop in rubles to RUB 238 billion ($3.32 billion). The company cited “weaker demand in the rough and polished diamonds market.”

In volume terms, the company said that 33.4 million carats were exported, 12 percent down from the 38.1 carats sold in for 2018. Net profits declined by 31 percent to RUB 63 billion ($880 million).

The difficulties experience during the course of the year were apparent early on, said Alexey Philippovskiy, the company’s chief financial officer.“In the first half of 2019, the diamond market was impacted by the excessive supply of polished diamonds and a decreased availability of funding for the Indian midstream segment,” he stated.

But, said the Russian company in a statement, the diamond producers managed to adjust their sales policy by reducing supply by 20 percent, helping to improve the balance of demand and supply across the chain by the end of 2019.

SALES FALLS 14 PERCENT IN FEBRUARY

The new year if a completely different, the first half being impacted by mainly “exogenous factors,” such as the coranvirus crisis, said Alrosa’s CFO.  

“At the same time,” he added, “the diamond industry looks much healthier in 2020, with balanced stocks, both for jewellery in retail, and for cutters’ diamonds, and with the mid-stream leverage back to historical levels,” Philippovskiy added. On that basis, the company had forecast to produce 34.2 million carats this year. This itself is down from its initially planned 38.7 million carats, with the decrease in production mainly being at the firm’s alluvial deposits.

Sergey Ivanov (left), Alroa CEO, and Alexey Philippovskiy, the company’s CFO.

But as things stand present, whether the revised production will be possible remains an open question. COVID-19 will negatively impact on Alrosa’s sales outlook for 2020, the company’s CEO Sergey Ivanov admitted early in March.

According to Alrosa, rough and polished diamond sales in February equaled $346.4, 14 percent less than the amount reported in January.

“Though our January and February sales were healthy, currently we are seeing a decrease in demand,” Ivanov said.

The Udachny pit in Yakutia, one of Alrosa’s key diamond-producing facilities.

INDIRECT BENEFICIARY FROM STEEP FALL IN OIL PRICES

In the meantime, to alleviate pressure on its clients, Alrosa has said it be more flexibile in terms of its sales policy in March, and will see how the situation develops in April and May. Most of company’s income comes through long-term contracts, with a smaller amount of coming though auctions and tenders. 

Over the longer term, Ivanov said, lower oil price, which have come as result of a falloff in demand because of the coronavirus, exacerbated by a disagreement over production policy between Russia and Saudi Arabia, will would have a positive impact on consumers’ disposable income.

Alrosa was an indirect beneficiary of the fall in oil prices, as they led to a collapse in the value of the the ruble, which hit a four-year low against the U.S. dollar. 

According to Ivanov, some 90 percent of the company’s revenues are denominated in foreign currency, while 80 percent of expenses are in rubles.

“Every ruble decrease against the US dollar will be increasing our earnings before interest, tax, depreciation and amortisation by up to 2.8 percent,” Ivanov explained.