Evgeny Agureev: Fundamentals Are Strong For Rough Price Growth

ALROSA’S direct sales to Indian customers increased from $580 million in 2019 to $619 million in a challenging 2020, accounting for 21% of its total sales last year, reveals Evgeny Agureev, Deputy CEO of ALROSA. In an exclusive e-mail interview with Solitaire, Agureev notes that the removal of taxation-related trade barriers could further augment the Indo-Russian diamond business. Find out more about his outlook for diamond production and rough prices in 2021 and 2022.

Have direct sales to India increased since Alrosa opened an office here? What is the current sales figure (in US dollars) of direct rough supplies to Indian companies? 

ALROSA is constantly increasing the cooperation with its partners from India. In 2017-2018, ALROSA’s direct sales to India accounted to ca. 14% of the revenue.

On 19th April, 2018, we opened our representative office in Mumbai (India), on the premises of the Bharat Diamond Bourse. The representative office does not conduct any trading activity, it focuses on strengthening the company’s ties with its clients, supports them in solving technical issues, etc. Nevertheless, in 2019 India’s share in ALROSA’s sales totalled 16%. And in the extremely challenging 2020, ALROSA’s direct sales to Indian customers grew to 21%, or $619 million in dollar terms versus $580 million in 2019. For the first quarter of 2021, ALROSA direct sales to India were ca. $241 million, representing 20% of the total.

Evgeny Agureev © ALROSA

Do you have any recommendations for rapidly growing direct Indo-Russian diamond trade?

Our clients from India, including those trusted long-term customers forming ALROSA ALLIANCE, are mostly satisfied with ALROSA services, the goods’ quality and the product mix, according to recent surveys. However, Indian clients mention that there is still a room for improvement in logistics procedures beyond the company’s scope.

The main issues today are caused by counter-Covid restrictions that are in place in many countries, and on the back of this, fast and accurate state control procedures are more important than ever. To this extent, we also see potential in digitalising the KP certificates and digital information exchange between Russia and India on KP-related data to expedite the clearing procedures. Thus, solving these two issues at the intergovernmental level would help accelerate the delivery process. This, in turn, will help Indian polishers to increase operational flexibility, letting them to plan their production and purchases more precisely in current highly uncertain times. Additionally, we welcome the efforts of the Indian authorities to work towards the removal of the existing trade barriers relating to the taxation regime for diamond sales in India.  

Rough diamond sorting. © ALROSA

Alrosa acquired Kristall in 2019. How do you envision the growth of Alrosa’s polishing business in years to come?

ALROSA’s cutting and polishing assets include Diamonds of ALROSA enterprises in Moscow and Barnaul, and Smolensk’s Kristall that was acquired from the state in late 2019. Together, they account for about a half of Russia’s diamond cutting and polishing capacities.

Under our strategy, we move forward integrating them into a single production framework aiming to optimise the production cycle, to increase efficiency in the product mix and to minimise administrative costs by creating a consolidated trading division.

Last autumn, we entered the active stage of this strategy’s implementation. The integration will help us in improving the allocation of rough diamonds and streamlining production processes. We expect the consolidation of these three facilities into a single organisational and legal structure to be completed in 2021. This year, ALROSA plans to actively invest in upgrading cutting and polishing equipment. Further plans will depend on the market situation.

Fancy colour polished diamonds. © ALROSA

Could Russia go down the beneficiation route, like some African diamond producing nations have? For instance, could potential clients be required to set up (or invest in) polishing facilities in Russia as a pre-condition for receiving long-term rough contracts?

ALROSA as a company does not have a law-making power. As of today, we are not aware of any legislative initiatives of such kind. Each of our clients is free to decide whether to establish an affiliate company in Russia based on its business model.

ALROSA signs long-term agreements with clients that meet trading activity requirements and comply with a number of strict legal and financial criteria. Long-term clients must also follow the principles set in the ALROSA ALLIANCE Guidelines on Responsible Business Practices, which include, inter alia, principles of lawful and fair competition, anti-corruption and anti-money laundering, financial transparency and product origin disclosure, compliance with the requirements and principles of the Kimberley Process and the System of Warranties of the World Diamond Council, and observance of human and labour rights, zero tolerance towards discrimination, forced and child labour.

Today we have 26 long-term client companies of Indian origin. Two of them have affiliate companies in Russia. The number of spot and auction buyers with Indian roots is times higher, and a couple of them have Russian affiliates as well.

On the other hand, ALROSA stands for the development of the domestic market and welcomes new cutting and polished facilities, having approved some initiatives supportive of the local industry.

What positive and lasting changes has the pandemic wrought in your business?

The pandemic highlighted the importance of a responsible, balanced approach to doing business as well as of a willingness to listen to counterparties and make compromises. Miners, cutters, dealers, jewellers – all of us found ourselves in the same boat.

Moreover, the pandemic has physically reshaped the way diamond sellers and buyers interacted. The diamond trade has always been based upon physical viewing of rough, personal meetings and negotiations. Two years ago, nobody would believe that an expert can successfully analyse and select diamonds without a personal presence.

In 2020, both sellers and buyers had to learn how to interact remotely. Today, we are successfully arranging high-tech remote viewings and competitive sales using “digital twins” along with traditional viewings, with procedures adjusted to meet counter-pandemic requirements. We offer a full-fledged ALROSA Video-Viewer service, with the help of which customers can view rough in video conferencing mode and interact in real time with an expert showing goods. It allows you to study in detail the goods from all angles, compare positions and receive all the data necessary for an informed selection, and in the conditions of continuing restrictions on international travel, our clients actively use it. Now this format is absolutely legitimate, and the possibility of using this option is spelled out in all documents.

Our main goal now is to support real demand and ensure that the market remains in balance. Traditionally, before concluding long-term contracts, we form an offer matrix for each client – that is, a list of what we will offer during trading sessions – based on what and how much this client bought earlier. But the pandemic, in fact, divided the trading background into three parts – what was before March 2020, a pause from March to July 2020 inclusive, and a kind of a “new reality” that began after the restart of the diamond trade in August 2020.

This year, trying to estimate the volumes and the product mix for new long-term contracts, we saw significant distortions because of this. Calculations covering periods before and during the acute phase of the pandemic do not reflect current customer needs. Therefore, we have extended the existing long-term agreements in order to ensure that a relevant trading history is long enough to approximate future needs of our long-term clients correctly.

Alrosa has won accolades for its corporate, social, and environmental practices. What should be the top priorities in sustainable development for the global diamond industry?

Sustainability is at the heart of ALROSA’s business strategy. We are committed to the sustainable transformation of our company.

The recently updated focus of ALROSA on Environmental, Social and Governance (ESG) metrics allows us to achieve significant restructuring of our management practices. Within this transformation, this year we have already established the Strategy and Sustainability Committee on the Board level, joined the UN Global Compact and currently are finalising a comprehensive sustainability strategy with specific KPIs. The strategy will be based on five strategic pillars – People, Health and Safety, Communities, Environment, Governance and Ethics, reflecting ALROSA’s approach to sustainable development and its contribution to the achievement of 13 priority UN Sustainable Development Goals. They also confirm our adherence to the ten fundamental principles of the UN Global Compact and the intention to promote the sustainable development agenda both within the company’s core activities and within the framework of developing international partnerships.

The steps we are making in this sphere clearly underpin our belief that sustainability is key for our industry’s long-lasting well-being and resilience. Diamonds are valued not just for their beauty, but for their strong symbolism, as these are scarce treasures that were created by Nature billions of years ago in the depths of Mother Earth. Consumers choose diamonds not just as a beautiful accessory, but also as an expression of their emotions. As people tend to consume more responsibly and sustainably, the future of the diamond industry is linked tightly to environmental protection and the benefits it brings for local communities.

Basketball stars at the Cheer festival organised by ALROSA every year in Yakutia together with its sports and cultural partners, to whom it provides charitable and sponsorship support. © ALROSA

The ESG transformation road ahead is certainly going to be very dynamic and challenging for the diamond industry, but we are confident in our objectives and those of our partners, including in India, in our common goal to embrace sustainability principles in our work with the aim to support our people, protect the environment around us and ensure prosperity of our communities, build constructive dialogue with all our stakeholders within the concept of shared values and inclusive development.

What is your outlook for diamond production and rough prices in 2021 and 2022?

Today we see a very strong demand for diamond jewellery from end consumers. Year to date, the demand for jewellery in the United States exceeds the levels of the successful 2018. Jewellery sales in China in 2021 are about 10% higher than in respective periods of the relatively successful 2018 and 2019. Retail demand is very high. At the same time, we see that mining companies’ stocks fell by the end of the first quarter to their lowest levels ever. Thus, today miners immediately redirect everything they produce to the market.

Midstream inventories have been mostly depleted as well. Rough diamond production this year is estimated to be 20-25% below pre-pandemic levels. Limited supply accompanied by firm demand represent solid fundamentals for rough price growth.

ALROSA remains committed to a prudentapproach when it comes to managing its sales and pricing strategy, as achieving healthy and sustainable market balance in the long term is considered as our main priority. Our price decisions are careful and consistent, as they provide for the long-term health of the industry. If you look at average rough diamond prices for the early 2010s, you will see that we are still well below those levels.

Any other message for the Indian diamond trade?

On behalf of ALROSA, I would like to express our solidarity with Indian people who struggle bravely with another wave of Covid-19 and its consequences. We wish all our partners and their families good health and strength in this fight.

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