Alrosa To Suspend Diamond Polishing, Might Cut Production

30/04/2020 12:49

Russian diamond mining giant Alrosa has suspended operations of its diamond polishing plants until the end of summer due to falling demand, CEO Sergei Ivanov said in an interview to RCB television channel broadcast on Wednesday. The miner also announced today (April 30) it is granting its rough diamond clients "maximum flexibility" for the May trading session and has not set an "obligatory buyout limit", adding that "deferred goods will be offered during future sales periods. Clients interested in purchasing rough are free to request and get the goods they need.”

“Regarding the polishing division, we’ve suspended almost the entire production, including the plant in Barnaul and Smolensk-based Kristall," Ivanov repoted said in the interview. "We had to switch almost 1,000 people into downtime that is paid for in accordance with legislation until the end of this year’s summer." He added, “We did this because we will be unable to sell the polished diamonds we can produce today as demonstrates the experience of our Indian colleagues and companies from other countries. The entire polishing industry was suspended in India, the lockdown was prolonged until the end of May. It is possible that it would be prolonged in many countries.”

He also did not rule out adjusting the 2020 production plan of 34.2 million carats as the company has a stock of diamonds of 21.1 million carats as of the end of March. Reporting on the interview with RBC, Rough & Polished cited Ivanov as saying that Alrosa will provide measures to reduce the production of rough diamonds for next year "because we entered the year with a high index of inventories and based on the current situation these inventories will last us for more than one year.”

Ivanov reportedly noted that Alrosa does not currently need state support, but if the company will not have sales within three to four months, then the issue may worsen, and in this case the state has a support tool to bail it out. He noted that during the crisis of 2008, the Russian repository named the Gokhran purchased rough diamonds worth $1 billion from Alrosa, which was eventually sold at a handsome profit.

Alrosa went ahead with its March rough diamond sale despite the global pandemic virtually shutting down the industry. As anticipated, it yielded modest results. Alrosa sold $148.7 million in rough diamonds last month, representing a 57% decline from their February sale ($342.3 million) and a 60% decline from March of 2019 ($369.2 million). Rough sales for the first quarter fell by 11% to 881 million from $988 million a year ago. Compared to the more robust market atmosphere in 2018, the $881 million in Q1 rough sales is 43% lower than the $1.58 billion in Q1 2018 sales. At the last sale, Alrosa's granted its contracted buyers total flexibility in their contracted purchasing obligations in the form of a 100% deferral option.

The Alrosa Group currently includes diamond cutting companies Diamonds of Alrosa (branches in Moscow and Barnaul), and Kristall (Smolensk), which was purchased from the state in October this year. Together they account for more than 60% of diamond cutting and polishing in Russia.