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Photo courtesy of Alrosa.

TAKING A CUE FROM DE BEERS,
ALROSA REVISES ITS ROUGH ALLOCATION SYSTEM

 

Alrosa, Russia’s state-controlled diamond producer, has announced that it will be copying a page from De Beers’ playbook, taking into account the specifics of a client’s business when preparing parcels for its Alrosa Alliance members, the exclusive list of companies that are eligible for a  regular supply of rough goods from the company.

Announcing the new policy, Alrosa has presented an outline of the concept it will be using in creating the list of partners eligible for signing long-term agreements, as well as new rough diamonds allocation principles. It will be relevant for the 2022-2024 contract period.

Alrosa said it had formulated the plan based on the lessons learned during the 2019 and 2020 crises. It takes into account the business specifics of different types of rough diamond buyers, preventing “volatility and dependence on outside factors in the diamond industry, reinforcing stability,” the Russian company stated.

In many respects the Alrosa Alliance always was modeled on the De Beers sightholder system, by which the bulk of its rough supply is distributed through a carefully selected group of mainly diamond manufacturers. A good number of De Beers sightholders are Alrosa Alliance members as well.

The Russian company says it pays special attention to client selection, seeking to enter into commercial relationships only with those who are capable of demonstrating proper legal compliance, ensuring financial sustainability, and meeting the highest business ethical and reputation standards. This means demonstrating compliance with the Alrosa Alliance Guidelines on Responsible Business Practices, which is the Russian company’s equivalent of De Beers’ Best Practice Principles Assurance Program.

CONTRACTS BEING RENEWED AFTER 1-YEAR HIATUS

Traditionally, Alrosa has sold the bulk of its diamonds to long-term clients under three-year supply contracts. These contracts sometimes specified in advance the mix and volume of diamonds that would offered. In the past, contract specifications were based on a client’s purchase history.

Long-term contracts with Alrosa guaranteed a monthly supply of rough diamonds, as well as an option to request additional goods.

Alrosa’s also sells regular rough diamonds as part of one-time spot deals. It also offers special size diamonds, weighing 10.8 carats or more,  and coloured rough diamonds for auctions and tenders.

Another contract period was due to start in 2021. However, given the difficulties faced by the midstream segment of the global diamond chain in 2020, Alrosa extended its long-term contracts to support the long-term stability of the industry and give it time to recover following several months of a trade slump.

Consequently, the company postponed the revision of its long-term clients list and their respective specifications. This allowed its existing customers to update their sales and purchase strategies and to forecast their future demand for rough diamonds as accurately as possible, under the new circumstances.

SUPPLY BASED ON BUSINESS ACTIVITY

In 2021, a thorough analysis by Alrosa of the previous two years showed the need for adjusting its goods allocation model under long-term contracts. It consequenty developed the new system, which ensures that specifications meet clients’ requirements as closely as possible. The new system takes into account the specific business needs of each clientcategory, such as diamond cutters, traders and jewellery retailers.

“The diamond market has successfully overcome two of the gravest shocks in a row,” explained Evgeny Agureev, Alrosa’s Deputy CEO. “The local industry crisis in 2019 and the subsequent global coronavirus pandemic have transformed the industry, making it much more transparent and open for discussions.

The key distinction of the new system is its division of contracts and goods depending on the clients’ business activity, said Evgeny Agureev, Alrosa’s Deputy CEO. (Photo courtesy of  Alrosa) 

“The key distinction of this new system is its division of contracts and goods depending on the clients’ business activity,” Agureev continued. “We give special priority to creating added value at all stages of a diamond’s journey.

“The continuous open dialogue we have been having for recent years has allowed us to improve the understanding of our customers’ needs even further. Thanks to this, we are now able to tailor extremely unique specifications for each client, ensuring the most effective buyout. This approach has been approved by the regulatory body, so the January 2022 trading session will follow these new rules,” he added.

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