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Alrosa Falls Victim to Changing Retail Practices

Dealers are buying less rough, as their jeweler clients want smaller inventories, miner says.
Jul 18, 2019 9:30 AM   By Rapaport News
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Retailers’ attempts to maintain low diamond inventories are hurting demand across the trade, Alrosa warned after reporting its lowest quarterly sales since 2015.

The Russian miner’s sales slumped 26% to $807 million in the second quarter ending June 30, it reported Thursday. An oversupply of rough and polished in the manufacturing and retail sectors has hurt appetite for the company’s goods, Alrosa explained. At the same time, jewelers are actively attempting to hold less stock, creating a further negative effect for dealers.

“Ongoing consolidation in the jewelry sector and growth in jewelry sales through online channels in the US result in a non-recurrent reduction in polished-diamond stocks across the retail sector, as businesses embrace more efficient stock-management practices, which…in turn impacts rough-diamond purchases by [the] midstream,” Alrosa said.

Indian diamond manufacturers’ difficulties obtaining credit have also weakened rough demand, the miner added. Its sales of rough diamonds fell 25% to $796 million for the quarter, while polished revenues slid 58% to $11 million. Sales value hasn’t been that low since the third and fourth quarters of 2015, when a slowdown in consumer demand led to the rough market almost grinding to a halt.

Alrosa’s rough-price index — which tracks like-for-like price fluctuation for diamonds up to 10.8 carats — declined 1.6% versus the first quarter. The index fell 4.6% during the first half of the year. The average selling price for rough decreased 18% to $96 per carat compared with a year ago, reflecting the drop in the price index and a shift in sales mix toward smaller, lower-value diamonds. Sales volume dipped 8% to 8.3 million carats.

Production rose 14% to 9.7 million carats due to the commencement of operations at the Verkhne-Munskoye mine in Yakutia, as well as higher grades at the Butuobinskaya pipe and at the Severalmaz division, which runs the Lomonosov deposit in the Arkhangelsk region. Alrosa’s stockpiles grew 36% year on year to 15.9 million carats as of June 30, as mining output exceeded sales volume.

In the first half, total diamond sales fell 33% to $1.81 billion, while production increased 10% to 17.6 million carats.

The company expressed optimism for the rest of the year as the fourth-quarter holiday period approaches, despite the midstream challenges and the negative impact of the US-China tariff war on key jewelry markets.

“Demand from jewelry consumers remains stable, which bodes well for renewed activity and higher demand for rough diamonds closer to the end of [the third quarter] in the run-up to [the] 2019-2020 Christmas sales season,” it noted.

Image: The Lomonosov mine. (Alrosa)
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Tags: Alrosa, Arkhangelsk, Butuobinskaya, Lomonosov, mining, Production, Rapaport News, retail, rough, Rough Diamonds, Severalmaz, Verkhne-Munskoye, Yakutia
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