Diamond Deficit Forecast

RAPAPORT… The president of ALROSA, Russia’s largest diamond miner, forecasts diamond prices will rise to “unprecedented levels” as demand outpaces the construction of mines. “For the first time, the market faces a growing deficit of rough diamonds,” Sergey Vybornov said at the 2007 Antwerp Diamond Conference, according to a number of news outlets. “This will shake the very foundation of the global diamond market.” Citing industry sources, he projected the demand for rough diamonds will rise to almost $20 billion by 2012.

Concerns about a deficit of rough diamonds have been reported by a number of industry publications and experts in recent years, but this is the first time they have been voiced by the head of the world’s second-largest diamond miner.

In October, ALROSA announced its new estimates for 2007. The company expects $2.32 billion worth of rough diamond production. In 2006, it produced $2.33 billion worth of rough.

“We see the increase in rough diamond prices every year,” said Nikolai Zhuravlev, of government-owned Kristall Smolensk, Russia’s biggest diamond manufacturer.

The average cost of Russia’s rough diamonds grew from $50.76 a carat in 2003 to $67.11 in 2006, according to the Ministry of Finance’s official website.

At the conference in Belgium, ALROSA signed a cooperation agreement with the Antwerp World Diamond Centre (AWDC). Among other things, the agreement calls for the two parties to jointly promote Russian diamonds on the international market and to cooperate on a study of the current diamond market.

Russia’s Bridal Market

A simple red gold band is no longer the only symbol of marriage in Russia. Today, an increasing number of newlyweds want diamonds in their wedding rings. Most jewelers interviewed said the model in high demand is a yellow or white gold ring with one or three or a strip of diamonds. The average size of a stone ranges from 0.03 to 0.5 carats.

“The purchasing capacity is growing and diamonds in wedding rings are becoming bigger,” says Vladimir Stankevich of Adamas. Today, newlyweds are ready to pay between $500 to $800 for a ring, compared to $300 to $500 several years ago.

“The demand for wedding rings with diamonds has almost doubled in the past two years,” says Aleftina Sokolova, head of marketing for Almaz-Holding.
Less intensely, yet steadily, the demand is growing for engagement rings with a diamond, a random thing in the Soviet times. It is still not common to buy an engagement ring, yet the Western tradition is coming to Russia, thanks to the popularity of romantic Hollywood films.

“Engagement rings are usually made for individual orders,” says Aleksandr Nikolaev, the president of the Jewelers Assembly of St. Petersburg.

Engagement rings are often more expensive with diamonds up to 2 carats. The most popular shape is round, according to Sokolova. A popular belief is the fewer sharp corners a stone has, the smoother the marriage.

Diamond Sales Expected to Rise

More jewelry containing diamonds is expected to be sold as Christmas bells start jingling. Russia’s jewelers expect up to a 30 percent sales increase in this segment. The stones vary from tiny to big ones, yet the jewelry itself must be large and designed as a going-out accessory.

“We expect to sell more chains and charms and other pieces that don’t need to be of a particular size,” says Maksim Strezhnev, director general of Ekaterinburg-based Rifesta.

Although the sales of jewelry with diamonds grow every year in line with the consumer boom in Russia — a 21.4 percent increase in 2006, according to Russia’s Jewelers Guild — jewelry makers lose a lot to producers of other consumer goods when it comes to holiday gifts. According to the guild’s research, only 4.2 percent of Russians choose jewelry as a present, against 40 percent who buy cell phones and 26 percent who prefer cosmetics.

Many jewelers attribute that fact not only to the still-low incomes of much of the Russian population, but also to a lack of advertising by the jewelry industry.

Smolensk’s Kristall publishes booklets about diamonds for jewelry exhibitions and individual companies run a few advertising campaigns in magazines and on billboards. Yet, Russians are not reminded every day from television screens that “diamonds are forever” and they are “a girl’s best friend” — not as often as they are told about new cosmetics and cell phones.

The Marketplace

• The biggest demand is for 0.3-carat diamonds.
• Russia’s rough exports in the first half of 2007 totaled 22.5 million carats worth $1.58 billion. That is a 21.6 percent increase over the same period of 2006.
• The export breakdown is as follows: EU, 9 million carats worth $683 million; Belgium, 6.8 million carats worth $479.8 million; Britain, 2.2 million carats worth $200.4 million; Israel, 912,500 carats worth $90 million and India, 510,700 carats worth $35.8 million.
• Russia’s rough imports in the first half of 2007 totaled 209,200 carats worth $4.67 million. That is a 113.7 percent increase over the same period of 2006.