Russian diamond producer Alrosa has reported a 50 per cent increase in total revenues for 2021, thanks to the worldwide increasing demand for rough and polished diamonds, based on the company’s fourth quarter and 12-month financial report.
Total revenues for the 12-month period is at RUB332 billion ($AU4.58 billion), driven by a 42 per cent increase in rough diamond sales, while Q4 saw an 8 per cent drop in revenue at RUB71 billion ($AU0.98 billion) “due to change in the sales mix”.
The total volume of diamonds traded for 2021 was 45.5 million carats, of which 30.4 million carats were gem quality diamonds and 15.2 million carats were industrial grade.
The strong consumer demand for jewellery during Christmas 2021 became the company’s “most successful Christmas selling period over the recent years” which drove sales performance for Q4.
According to Alexey Philippovskiy, chief financial officer, Alrosa, “Q4 demand for jewellery continued to grow by double digits. In 2021, sales of diamond jewellery hit a new record of $US84 billion ($AU114.81 billion), 10 per cent above the previous records of 2018–2019.”
This year’s outlook forecasts baseline production at 34.3 million carats and capital expenditure estimated at RUB33 billion ($AU0.46 billion). The company this year also “intends to go on with its operational efficiency strategy, which will enable Alrosa to partially offset inflationary pricing pressure from key input materials and growth in run of mine volumes,” he added.
However, economic sanctions and other restrictions imposed on Russia could turn the tables on the company’s performance this year especially with tougher measures expected should the conflict with Ukraine continue to escalate.
Sanctions could threaten Alrosa’s growth momentum
As reported in Jeweller, the US government has named Alrosa as one of the companies facing “expansive economic measures” and which is expected to impact the worldwide supply and trading of diamonds.
The US Department of Treasury has issued the sanction measures citing Russia’s invasion of Ukraine, prohibiting US-based companies from pursuing all new financial activities and transactions with companies named in the directive.
Among those implicated in the order are Russian elites and cronies associated with Russian President Vladimir Putin, which targeted – among them – Alrosa CEO Sergei S. Ivanov, whose father Sergei B. Ivanov is a ruling official of the Russian government.
The action was taken “in coordination with allies and partners” to hold Russia accountable for the invasion of Ukraine and mitigate potential impacts to the US and its allied countries.
Alrosa is one of the largest international mining companies headquartered in Russia. It accounts for an estimated 95 per cent of diamonds produced in the country and 28 per cent of diamonds extracted worldwide.
Another major disruption that could be critical for the international diamond industry is the war’s impact on worldwide supply chains and worsen the shortage situation.
Several logistics companies, namely FedEx, UPS, and A.P. Moller-Maersk have suspended services on all ports and transport hubs in and out of Ukraine until further notice. More freight and logistics companies are expected to follow suit should the conflict continue to escalate.
Wealthy Russians turn to jewellery for savings
According to media reports, affluent Russians have been purchasing luxury watches and jewellery in significant volumes in an effort to preserve the value of monies in light of the dwindling currency exchange rate and restricted cash movement due to the imposed sanctions.
Bloomberg reported that Bulgari stores in Russia have seen a dramatic increase in the sale of luxury items over the last few days.
Jean-Christophe Babin, CEO, Bulgari pointed out that jewellery is considered a “safe investment”.
Aside from Bulgari, which is owned by French luxury conglomerate Moët Hennessy Louis Vuitton (LVMH), other luxury brands that saw an increase in sales include Rolex, Omega, and Cartier, among others.
India looks to bypass international financial restrictions
Meanwhile, the Indian government has expressed intentions to bypass cross-country banking restrictions by reviving its currency trade arrangement with Russia.
The trading arrangement – which was discontinued years back – allowed India and Russia to directly trade currencies before the implementation of the worldwide financial messaging system known as SWIFT.
The Indian diamond industry has earlier expressed fears about the impact of the war on the supply of rough diamonds as Russia, particularly Alrosa, is a major supplier to the largest diamond cutting and polishing centre in the world.
Diamond supply to India will be largely affected as around 8 to 10 major diamond enterprises managed by Gujarati diamantaires operate in Russia.
India is one of the four member-countries of the United Nations Security Council that abstained from voting on a motion to demand for Russia’s withdrawal from Ukraine.
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