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Mining companies come to China after diamond prices stabilize

17 may 2018

For a few years, diamond prices in the market have been sinking, but last year the situation stabilized. Russian diamond miner ALROSA expects that the world diamond market will be stable this year and the company is set to cooperate with the markets of China and Hong Kong.

In addition, ALROSA is intensifying its marketing efforts in response to stronger positions won by lab-grown diamonds in recent years.

ALROSA is one of the world's largest diamond mining companies. Last year, it produced 39.6 million carats of natural diamonds representing 30% of the world's supply of natural stones. The company’s sales in the first four months of this year went up 18% to $ 2 billion.

In an exclusive interview with the Hong Kong Economic Times, Sergey Ivanov, CEO of ALROSA said that diamonds of all categories are now in stable demand and that retailers demonstrated good results during the last winter trading session and are now replenishing their inventories. Right now, the company delivers 70% of its production under long-term contracts to 55 companies from all over the world. ALROSA’s customer list includes six jewelry companies from China and Hong Kong, including Chow Tai Fook. The remaining 30% of diamonds are sold through auctions and under one-time contracts.

He also stressed that Hong Kong is one of the most important markets for ALROSA today. In March this year, the company sold diamonds at an auction in Hong Kong raking in 16.3 million yuans. The company plans to have seven such auctions during this year. Last year, Chinese companies bought $ 180 million worth of rough from ALROSA, which is a small share of the miner’s total sales. At the same time, this indicator has grown by 18% over the past three years. Sergey Ivanov expects that this year growth will continue, and he is optimistic about the prospects of the Chinese market.

The United States, the world's largest market for diamond jewelry, posted a five-percent increase in sales in the fourth quarter of 2017, which had a positive effect on ALROSA's performance in this region. Now the company is resuming the operation of its office in the United States.

Sergey Ivanov also believes that the world diamond market will remain stable this year. According to industry expectations, this means that demand for diamond jewelry will grow by 1% to 4% every year. This year, ALROSA also opened an office in India, and the company's branch in Vladivostok will be responsible for interaction with the Asia-Pacific market.

Artificial diamonds have strengthened their market position in recent years, and they cost much less compared with natural stones. Sergey Ivanov believes that synthetic diamonds will not be able to compete if retailers inform consumers about the origin of their goods. "This is fair competition. Consumers know what they are buying. Just like Swarovski sells crystals and can coexist with the natural diamond market."

He believes that each product has its own market, and many consumers will continue to purchase natural diamonds, while the industry will position them on the market promoting the "eternity" that they symbolize. At the same time, he mentioned cases when some sellers admixed synthetic stones to natural diamond parcels, which caused concern. "An artificial stone can be detected in a parcel of rough diamonds. However, when it is set into a jewelry piece, it is more difficult to do."

ALROSA, one of the world's largest diamond mining companies, is operating in the Republic of Sakha (Yakutia) in north-eastern Russia, where winter temperatures reach minus 50 degrees Celsius. ALROSA is developing several diamond fields in Yakutia and Arkhangelsk. Most of the work is carried out in permafrost. The company not only uses advanced production technologies, but also pays higher wages to its workers - three times higher than the Russian average. High wages help to hire miners, and the company spends 3% of its annual revenue on social projects.

The CEO of ALROSA expects that this year the company’s diamond output will reach about 36.6 million carats - 7.6% less than last year, when ALROSA produced 39.6 million carats. Sergey Ivanov noted that the company has a reliable inventory management system and provides the market with an adequate volume of supplies. Today, 70% of sales come from contracts with jewelers. Last year, an electronic system was introduced to monitor the activities of customers, including purchases and their volumes. This helps form sales plans for the future.

Thanks to a new diamond field in Yakutia, where production will begin this fall and at the expense of the already available assets, the company plans to increase production in 2019.