Alrosa Falls Victim to Changing Retail Practices

RAPAPORT...Retailers' attempts to maintain low diamond inventories are hurtingdemand across the trade, Alrosa warned after reporting its lowest quarterlysales since 2015. The Russian miner's sales slumped 26% to $807 million in thesecond quarter ending June 30, it reported Thursday. An oversupply of rough andpolished in the manufacturing and retail sectors has hurt appetite for thecompany's goods, Alrosa explained. At same time, jewelers are actively attemptingto hold less stock, creating a further negative effect for dealers. "Ongoing consolidation in the jewelry sector and growth injewelry sales through online channels in the US result in a non-recurrentreduction in polished-diamond stocks across the retail sector, as businessesembrace more efficient stock-management practices, which...in turn impacts rough-diamondpurchases by [the] midstream," Alrosa said. Indian diamond manufacturers' difficulties obtaining credithave also weakened rough demand, the miner added. Its sales of rough diamondsfell 25% to $796 million for the quarter, while polished revenues slid 58% to$11 million. Sales value hasn't been that low since the third and fourthquarters of 2015, when a slowdown in consumer demand led to the rough marketalmost grinding to a halt. Alrosa's rough-price index - which tracks like-for-likeprice fluctuation for diamonds up to 10.8 carats - declined 1.6% versus thefirst quarter. The index fell 4.6% during the first half of the year. Theaverage selling price for rough decreased 18% to $96 per carat compared with ayear ago, reflecting the drop in the price index and a shift in sales mixtoward smaller, lower-value diamonds. Sales volume dipped 8% to 8.3 millioncarats. Production rose 14% to 9.7 million carats due to thecommencement of operations at the Verkhne-Munskoye mine in Yakutia, as well ashigher grades at the Butuobinskaya pipe and at the Severalmaz division, whichruns the Lomonosov deposit in the Arkhangelsk region. Alrosa's stockpiles grew 36%year on year to 15.9 million carats as of June 30, as mining output exceeded salesvolume. In the first half, total diamond sales fell 33% to $1.81billion, while production increased 10% to 17.6 million carats. The company expressed optimism for the rest of the year asthe fourth-quarter holiday period approaches, despite the midstream challengesand the negative impact of the US-China tariff war on key jewelry markets. "Demand from jewelry consumers remains stable, which bodeswell for renewed activity and higher demand for rough diamonds closer to theend of [the third quarter] in the run-up to [the] 2019-2020 Christmas salesseason," it noted. Image: The Lomonosov mine. (Alrosa)