Alrosa to Lift Production Amid Positive Outlook

RAPAPORT... Alrosa plans to increase its rough-diamond output next year as new mining resources come onstream, enabling it to address the market's supply shortages amid strong demand.The company expects to produce around 33 million to 34 million carats in 2022, up to 5% more than this year, executives said last week in an investor call. Given the industry's low inventory levels, it's likely to sell the entire amount, they noted.The relaunch of the Ebelyakh alluvial deposit - one of the sites Alrosa shut during the Covid-19 crisis - will contribute to the higher output, chief financial officer Alexey Philippovskiy explained. Another factor is the ramp-up of the Udachny underground mine, which will yield about 4.4 million to 4.5 million carats next year.The update follows Alrosa's recent increase to its 2021 production forecast, with the company now expecting to unearth 32.5 million carats for the full year, compared with an earlier plan of 31.5 million carats.Continued demandWith stockpiles at unprecedentedly low levels, Alrosa has struggled to meet customers' strong demand in recent months. The company's inventories slumped 72% year on year to 8.6 million carats as of September 30. They will climb slightly to around 9 million to 10 million carats by the end of the year, reflecting higher production at alluvial mines, management predicted in the call.The company's main response has been higher rough prices: It lifted these by a single-digit percentage at its October sale, and will likely continue with "very moderate" adjustments this month, CEO Sergey Ivanov said.Robust appetite for polished will continue into next year, as inflation rates increase and wealthy individuals splurge on investment diamonds, he predicted. In the mass-market segment, Ivanov added, "there's a high chance that [polished prices will] at least grow with inflation.... And we don't see any reasons for the demand to cool down. We think that according to all the classical [factors], the prices should go up."Extra supplyGokhran, Russia's state gem depository, eased the industry's shortfalls this year by selling some of its rough inventories into the market. That included around $140 million in goods at a sale in July, with Alrosa buying around 70% of that to help provide its customers with the diamonds they needed.That strategy will be similar in 2022, the CEO explained - though he noted that the amounts in question are tiny compared to Alrosa's overall sales."If we look into the figures of the next budget of the Russian Federation, I guess that the figures for the sales of rough diamonds will be roughly the same [as] this year," Ivanov estimated. "So I guess it will be...something below $200 million. It's less than even one [Alrosa] monthly sale. But we think that this will also help to stabilize the market."The miner aims to raise production gradually over the coming years: Output will likely exceed 34 million carats in 2023, before reaching a range of 35 million to 36 million in 2025 or 2026, Philippovskiy projected.Image: Rough diamonds. (Alrosa)