Platinum-group metals price hit due to stagnant auto production

The shortage of semiconductors is negatively affecting the price of platinum-group metals as investors brace for a long-lasting hit to car production.

Today

Zimbabwe security forces arrest 72 illegal diamond miners

Zimbabwe Republic Police and the Zimbabwe National Army (ZNA) arrested at least 72 illegal diamond miners in a joint operation to remove hundreds of artisanal miners who invaded the Charleswood Estate in Chimanimani in search of alluvial diamonds...

Today

Earthquake halts operations at Victorian gold mine

Australia’s White Rock Minerals has suspended underground operations at its Woods Point gold project after an earthquake struck near Mansfield in Victoria. The earthquake struck at 9:15 am on 22 September occurring 10 kilometres beneath the surface at...

Today

DMCC announces Ambassadors of WDC’s System of Warranties

DMCC has announced that its Executive Chairman and Chief Executive Officer, Ahmed Bin Sulayem, and its Special Advisor - Precious Stones, Dr Martin Leake, have been appointed as ambassadors of the World Diamond Council’s (WDC) updated SoW initiative...

Yesterday

WDC launchеd an upgraded and expanded System of Warranties

The World Diamond Council (WDC) has marked the 40th anniversary of the establishment by the United Nations of the International Day of Peace with the official public launch of its upgraded System of Warranties (SoW).

Yesterday

ALROSA Toughens Rough Contract Terms

23 november 2012

ALROSA in November toughened its long-term client agreement system, according to a report by Interfax posted by Rapaport on www.diamonds.net. It increased its monthly rough diamond selection limit to 90 percent in November, compared with 60 percent just three months ago, representatives of Russia's ALROSA product clients told Interfax. The Russian rough diamond company continues to refrain from sharp movements on the market, similar to those recently adopted by De Beers, but amid a weaker market it is adjusting its sales policy and increasing discipline among its clients.

Limit manipulation

ALROSA's clients with long-term (three- or two-year) diamond supply agreements do not have to buy all their monthly volume plan, but they must meet their limit, otherwise they risk losing their status. ALROSA can correct this minimum volume every month.

Vyacheslav Raevskiy, the deputy general director of Smolensk diamond company Kristall, ALROSA's biggest Russian client, said ALROSA has been raising limits since August, when clients had to take at least 60 percent of the monthly contract by volume. In September, the minimum purchase was 70 percent of the contract by volume and in October it was 80 percent, a source close to Kristall said.

Another Russian consumer of ALROSA, Ruis Diamonds, which is part of Lev Leviev's Ruis Group, confirmed the information on the November and October limits to Interfax. A comment was not obtained from EPL Diamond in Yakutia, another major Russian client of ALROSA.

Sales terms should be the same for all clients, a source close to ALROSA told Interfax. "Regulations on the procedures and terms for the sale of ALROSA natural diamonds [approved by the Federal Antimonopoly Service) guarantee all clients use the same criteria and uniform procedures in trading. Thus, we can confidently say that the changes will have affected all consumers, including foreign clients.''

ALROSA has 35 long-term clients that acquire rough diamonds in lots and boxes during monthly trading sessions. The ALROSA website contains the schedule for sales on foreign and domestic markets. The website only discloses information on 24 clients (including Chow Tai Fook, China's leading jewelry manufacturer, with which a two-year agreement was signed in November). Some clients did not give permission for information on them to be published.

The Russian clients include Kristall, Ruis Diamond, EPL Diamond and Mosalmaz (belongs to state-owned Almazjuvelirexport, through which ALROSA in accordance with legislation sells control consignments of uncut diamonds). Many of ALROSA's foreign clients are also sightholders of De Beers. These include companies such as Arjav Diamonds, Chow Tai Fook, Dali Diamond, Dianco, Diarough, Pluczenik, Rosy Blue, Tache and others.

ALROSA sold 26.7 percent of its rough diamonds on the domestic market in January-September 2012 (28.9 percent in the same period of 2011), shows a company report by Russian Accounting Standards. Eight Russian diamond polishing companies that have long-term agreements with ALROSA accounted for 54.2 percent of sales on the home market. Based on these figures (not counting production by subsidiaries Alrosa Nyurba, Almazy Anabara, Severalmaz), Russian long-term clients accounted for 14.6 percent of ALROSA's revenue in the nine months, or RUB 13.2 billion.

Unappealing deferment

Sales policy adjustments by ALROSA are not restricted to purchase limit manipulation. Sometimes the company enables a reduction in the purchase of rough diamonds, deferring the purchase of part of the contract to a later date. This measure was applied by ALROSA in the summer of 2012 against a poor market and a drop in the profit margin for the diamond polishing business. ALROSA reports that clients were given the opportunity to defer up to 50 percent of their monthly volume. De Beers applied a similar measure when during two sights in the summer it allowed clients to delay purchasing up to 50 percent until March 2013 because of insufficient liquidity. De Beers generosity did not, however, last that long and sightholders say that during the October sight, which became a record for 2012 (volume ranged from $700 million to $750 million according to different estimates), clients had to buy the deferred volume.

Kristall's chief executive, Maksim Shkadov, said the volume of rough diamonds that reached the market due to the early purchase was huge. This is what Shkadov told industry agency Rought & Polished, without giving any specific figures Kristall itself took advantage of the De Beers proposal, he said earlier.

Kristall and Ruis were not interested in a similar suggestion from ALROSA, spokesmen for the companies told Interfax. Nobody took advantage of the ALROSA initiative to postpone 50 percent of monthly volume because fixing the current price was proposed, Ruis Diamond's chief executive, Valery Morozov, told Interfax. "The price could go up or down, so ALROSA clients did not want to take on that risk," he said.

ALROSA is not commenting on sales issues.

Prices

ALROSA's Russian clients differ in their opinion on rough diamond price dynamics. One should take into consideration, however, that the term "average price of gem diamonds," is on a par with "average temperature in a hospital." In any one period of time a producer can raise prices on one range, lower for another and leave intact for a third. In addition, each consumer might have different range preferences.

ALROSA adjusted prices somewhat in November to compensate for the rise in the selection limit, Morozov said. On several positions the drop in this period was 3 percent, he said.

Prices for ALROSA rough diamonds had not been corrected since September, when the company lowered prices 2 percent to 3 percent, Raevskiy said. Prices have dropped by around 15 percent since January 2012, he said.

The latest forecast from ALROSA on average annual prices for rough diamonds in 2012 shows a 1 percent rise against 2011 ($196.9 per carat). ALROSA announced that in late October, reacting to the actual situation (in early 2012 ALROSA expected 4 percent growth). The average price for ALROSA diamonds climbed 11 percent year-on-year in the first half to $195.2 per carat. But in the second half the comparison will not be so rosy - based at least on the predicted 15 percent drop in prices from the start of the year.

For now it seems possible that ALROSA will achieve its annual benchmark, said Sergei Filchenkov of Metropol.

Crackdown term

ALROSA clients do not have any information on how long the tougher sales policy will be in force as they learn about such things almost after the fact, a source close to one of the clients said. Perhaps there will be some clarity soon - during the talks between clients and ALROSA on the terms for 2013 contracts, which are starting now. Information on selection limits on the market, which for most of the year faced insufficient demand, is very important for ALROSA clients, especially those that are also De Beers sightholders. De Beers made sightholders buy previously deferred volume in October, leading to surplus supply of rough diamonds on the market, Sergei Goryainov of Rough & Polished said.

"Reducing the free share - is a measure to increase discipline because of the downturn in the overall condition of the rough diamonds market. Nobody wants the risk," Goryainov said. "If such a change is made it could remain in force at least for the first quarter of 2013," he said. Until then the level of sales for producer companies will remain critical for clients, he said.

"Such a ratio between the mandatory/voluntary parts of contracts could remain in force until activity on the market picks up and there is a correction," Filchenkov agreed. "As demand climbs in India and China the ratio could change in favor of increasing opportunities for buyers. Signals of increased demand for gold from the jewelry industry have already been noticed - in the third quarter demand in China climbed 10 percent. The rough diamond market is also impacted by this," the analyst said.

Increasing the selection limit is the seller temporarily hedging its position, he said. "In this way ALORSA is giving itself a guarantee that it can sell its planned volume by the end of the year and achieve its revenue forecast [$4.59 billion for the ALROSA Group],'' Filchenkov said.