The Russian company ALROSA will be left without exports for two months. The diamond producer took this decision at the request of Indian authorities, who indicated that demand for precious stones was already declining. In addition, the so-called Diwali season begins soon in India - the largest religious holiday, due to which the country goes on vacation for several weeks. ALROSA, as stated in the report, fears that diamonds will not be cut during this period, which will lead to overstocking of the market and, against the backdrop of declining demand, will bring down prices. As a result, the company abandoned the distribution of raw materials in September and October.
Where it leads? And why did India play a key role in this decision? Kommersant FM discussed these questions with Evgeniy Mironyuk, a stock market expert at BCS World of Investments:
“We are talking about coordinating actions between diamond producers and processors to prevent overstocking of the market. This generally fits into the strategy of the Russian company to maintain prices for precious stones, which, let me remind you, are falling. Thus, since the beginning of the year, the cost of diamonds has decreased by 15%.
The Diwali season will last a little less than two months; due to the holidays, many market players will not work, and supplies from ALROSA may lead to an excess of supply over demand from diamond cutters and manufacturers.
There are three main consuming regions for precious stones: the USA, China and India. The latter country is also one of the largest diamond cutters and processors, so it plays a primary role here.
As for ALROSA's income, the company is helped by a weaker ruble and the absence of a one-time mineral extraction tax in the second half of the year. Accordingly, there is an opportunity to maintain profits at least in ruble terms.”
Kommersant FM's interlocutors expect that other global diamond producers, for example, the international holding De Beers, whose headquarters are located in South Africa, will join the call of the Indian authorities. However, this has not happened yet.
Meanwhile, there is another threat to Russian diamonds: foreign media sources report that the precious stones may be subject to sanctions by the G7 and the European Union. A decision could supposedly be made in the coming weeks.
However, investment strategist at the management company Ari Capital, Sergei Suverov, believes that these sanctions will not be fatal:
“The G7 countries account for approximately 80-90 million carats of diamond consumption per year. As for India and China, this figure is at the level of 60 million carats.
That is, the Group of Seven is ahead in this area, but taking into account the fact that Russia produces approximately 40 million carats annually, then India and China can take away all this volume.
As for possible restrictions in this industry, I think the situation will be similar to similar sanctions on oil, which is now quietly sold to India and China, although at some discount to the world price.
As far as I understand, after cutting it is quite difficult to separate diamonds of Russian origin from other stones.
But if technology makes it possible to somehow control the process of selling diamonds, then the Russian Federation, taking into account the capacity of the markets, can actually direct supplies to developing countries.
Russian production is less than demand in developing countries.”
ALROSA shares also reacted to the news of the suspension of supplies to India. The company's shares on the Moscow Exchange fell by 2.5%, but the shares of De Beers' parent company, Anglo American PLC, rose by 1.5% on the London Stock Exchange.
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