ALROSA Steps Up Production in Q3, Rough Sales Down, Prices Rise

Mining and Exploration
22/10/2018 15:27

Russian diamond mining giant ALROSA increased its production in Q3 2018 by 23% compared to Q2, and its output was up 2% year-over-year, somewhat mitigating the company's 11% decline in production over the first nine months of 2018, which now stands at 26.4 m carats. Meanwhile, ALROSA's Q3 rough diamond sales fell by 26% compared to the prior quarter and are down by 9% for the first nine months of 2018, while average realised prices for gem-quality diamonds during the quarter (including product mix change effect) gained 22% over the last quarter and are up 18% y-o-y. Gem-quality sales rose to $199 per carat due to the company's improved product mix, as sales of +10.8 and +2 carat stones increased. The diamond price index has risen by 5.2% so for this year, driven by improved demand outside of India. Q3 sales decreased by 10% q-o-q to $973 m (up 13% y-o-y), with gem-quality diamond sales (excl. polished and industrial diamonds) amounting to $949 m.

ALROSA attributed its Q3 production increase to seasonal growth in output at alluvial deposits, an increase in ore and gravels processing, and the ramp-up of the recently launched assets to design capacity. In Q3 2018, the volume of processed ore and gravels grew by 70% q-o-q (up 10% y-o-y) to 17.2 m tonnes, while the average diamond grade per tonne of ore was lower by 28% q-o-q (down 7% y-o-y) to 0.61 cpt. ALROSA says the 11% decrease in output for the year thus far to 26.4 m carats was mainly due to the shutdown of the Mir underground mine (UM) and the completion of open-pit mining at the Udachnaya pipe. The closure of the Mir UM in 2017 and production growth at lower-grade assets has also led to 14% decline in the overall grade of diamond recoveries. The miner has kept its 2018 production forecast at 36.6 m carats, a decrease of 8% y-o-y. Inventories as at the end of Q3 2018 were up by 42% compared to Q2 (down 11% y-o-y) to 15.5 m carats, driven by seasonal production growth at alluvial deposits and lower sales volumes.

Market overview

ALROSA provides the following summary on the current state of the diamond trade: In H1 2018, the diamond jewelry market grew by 6% as all key markets enjoyed rising sales, with the exception of India. The stagnant growth in India was due to local banks' reluctance to fund the diamond industry. In H1 2018, the diamond jewelry market trended positive, among other things due to the robust growth of major markets in the US and China. The North American market saw diamond jewelry sales rise by 5% y-o-y. In Asia and Europe, sales in dollar terms gained 8% y-o-y (up 3% and down 3%, respectively, at constant exchange rates). In Q3 2018, the rough diamond market experienced a traditional seasonal slowdown due to summer holidays. Beginning in the second half of August, cutters were loading production facilities to accumulate sufficient diamond inventory ahead of the Diwali festival holidays starting on 7 November. Resumed market activity following the summer slowdown saw weaker demand for inexpensive goods due, in part, to the depreciation of the world currencies against the US dollar.