RAPAPORT… Kristall Smolensk, Russia’s largest diamond manufacturer, reported $122.9 million in revenue for the first quarter of 2011 — higher than anticipated — and net profit of $1.38 million. “We exceeded the planned figures by 30 percent,” said Maksim Shkadov, the company’s director. Most of the product was exported, with domestic sales accounting for only 2.3 percent of the total volume. By comparison, international sales in the first quarter of 2010 represented only 65.8 percent of total sales. To take advantage of strong demand on the world market, Shkadov said the company is expanding its international client pool.
Even after the quarter ended, Shkadov said sales continued to grow in April and May. “There is a steady demand for our diamonds,” he said. “We shifted our production to double and triple excellent gems and our clients like that.” Yet, Shkadov expressed concern about the overheated polished and rough market. “The market is crazy, although it’s not clear why it’s happening, as it doesn’t correspond to jewelry retail sales,” he said, noting that the current situation is similar to that in 2008 when speculators were heating up the prices. “We’ll see the situation much clearer after the Las Vegas show,” he said.
Polished sales inside Russia slowed in the second half of April. “From April 15 till after May 10, it was a dead season,” said David Natanov, the director of Diamond Panorama, a Moscow-based manufacturer and jewelry maker. The demand for diamonds in Russia is growing slower than in other countries.
“Many companies are cutting down on production of diamond jewelry,” said Dmitry Vinogradskiy, marketing director of Shreya Core, polisher and jewelry maker. Cheap items dominate the domestic Russian jewelry market and manufacturers say sales won’t reach precrisis levels anytime soon.
More Diamonds to ALROSA
ALROSA is planning a new program of geological exploration that is projected to add more than 430 million carats of diamonds to its fixed assets in the next eight years. The expected discoveries will allow the company to replenish its mineral base as ALROSA is planning to mine between 33 million and 39 million carats a year over this period. The company’s press release said the program will also “ensure additional growth in its resources over the period by more than 100 million carats.”
The plans call for the miner to intensify its large- and medium-scale exploration activities by modernizing exploration facilities and introducing a unified automated system to process geological and geodetic data. The company says its previous program allowed replenishment of only 70 percent of its mineral base due to “lack of technical and production facilities.” The company’s representative said the areas in which exploration will be conducted have been identified and, as soon as the examination shows that mining is profitable at a certain sight, the discovery will be announced.
Jewelry Sales
Jewelry sales slowed in the first half of May because of two big public holidays, but started picking up in advance of the school graduation season. “There’s growth in the sale of items costing between $1,000 to $2,000 compared to 2010, when only sales of cheaper jewelry costing less than $700 were increasing,” said Svetlana Rakhmaninova from Rifesta. Her Yekaterinburg-based company is preparing a collection of cocktail jewelry with semiprecious stones and diamonds.
Many companies create cheaper and brighter jewelry for the summer, usually designed with colored gemstones. These summer collections traditionally are introduced at the New Russian Style show in Moscow in late May. In 2011, 539 companies exhibited at the show, a 5 percent increase from 2010. “Retailers are coming to this exhibition to purchase merchandise for summer,” said Fyodor Poludenny, deputy director of Estet Jewelry House, a leading Moscow-based jewelry manufacturer.
Jewelry manufacturers say that sales in April and May were undermined by a documentary on fraud, counterfeit products and smuggling in the jewelry business that was shown on a popular state-owned television channel. “Journalists should have named the companies that break the law, but instead, they just smeared the whole industry,” said Ilya Agadzhanov, from Yekaterinburg-based Treasure House Russia. In response to the broadcast, a group of jewelers has filed a lawsuit accusing the channel of damaging the industry’s reputation.
New Retail Shopping Model
A shopping facility designed to house dozens of jewelry retailers in the same location opened in Moscow at the end of April. Such centralized, single-product space is new for jewelry retail in Russia. The Golden Plaza occupies 15,000 square feet on the ground floor of a new shopping mall and is located near a busy intersection and a large office center, not far from Moscow’s center city area.
“We target mass market,” said Artur Hamalyan, the center’s managing director. “We want to create an ultimate destination for buying jewelry, the way it is done with clothes and electronics.” The company advertises in subways, mails out catalogs and plans to bring in busloads of tourists.
The Marketplace
- In its most recent auction, ALROSA sold 330 lots of rough diamonds for $41.1 million, 127 percent higher than the starting price.
- The buyers — 64 domestic and foreign companies — were offered 334 lots weighing 18,600 carats.
- The largest stone weighed 99.74 carats.
