Alrosa President Zharkov: April Trading "Somewhat Weaker" than March

Mining and Exploration
27/04/2016 10:47

The preliminary results of Alrosa's April trading session with long-term clients was "somewhat weaker" than the March session, Alrosa President Andrei Zharkov said in an interview with Interfax. "We still have not summed up the results. But according to preliminary data, the April session should be somewhat weaker than March," he said. For January-March of this year Alrosa sold rough diamonds for a sum no less than $1.3 billion ($1.1 billion a year earlier), with approximately the same levels each month. The results of the first quarter were successful for Alrosa, reflecting the transition of the market to a stage of reserve replenishment, the volume of which fell in particular due to the 30% fall of Alrosa's sales in 2015. Meanwhile in April of this year Alrosa had to reduce prices by 1%-2% for its session for the first time since September 2015, in reaction to an adjustment carried out by De Beers in January (5%-7% price reduction according to different estimates).

Might lower production to "prevent stocks from increasing"

Management at Alrosa has decided its new production guidance for 2016 and will recommend that the supervisory board approve a reduction in diamond mine output to 37 million carats, Zharkov told Interfax. "I've discussed things with my colleagues and now, in the framework of the strategy committee under the supervisory board and in the framework of the supervisory board itself, we will be raising the issue of lowering production this year to 37 million carats," Zharkov said. "This is not our decision alone: it needs to be adopted by the supervisory board, because it has certain consequences form the point of view of the company's budget," he said. The plan was originally to produce 39 million carats of diamonds this year. As the diamond market situation deteriorated in the second half of 2015, the company said it was thinking of lowering this guidance. Two possible scenarios were mentioned: 34 million carats, where production of alluvial diamonds would decrease by 5 million carats; and 37 million carats. Zharkov said the company's goal in 2016 was to "at least prevent stocks, which grew significantly in 2015, from increasing further."

Additionally in this light, Alrosa may sell uncut diamonds to the State Precious Metals and Gemstones Repository (Gokhran), although the sides have yet to discuss the details. "If sales in 2016 [to Gokhran] do take place, it will be connected to Gokhran's wish to top up the State Fund with certain types of valuables, including uncut or cut diamonds. Naturally, if Gokhran wishes to buy uncut diamonds in such and such amount, we will happily be ready to carry such a transaction out. This year, Gokhran has the opportunity to buy uncut diamonds, even if at the moment it has not yet happened," Zharkov said.Gokhran has not made any significant purchases of uncut diamonds from Alrosa since 2008-2009 when sales from diamond miners practically ground to a halt. At the end of last year, when a drop in demand on the uncut diamond market caused a 30% drop in Alrosa's sales, the company's management started discussing the possibility of shipments of uncut diamonds to Gokhran in 2016.