Gokhran of Russia began purchasing diamonds from ALROSA

Against the backdrop of Western sanctions and low world prices for diamonds, Gokhran began purchasing stones from ALROSA (MOEX: ALRS), resorting to this anti-crisis measure for the first time since 2012. Back in January, the Ministry of Finance did not consider this possibility. However, apparently, the ban on the import of diamonds of Russian origin into the EU from March 1 hit ALROSA’s sales. Analysts, however, believe that global diamond prices have bottomed out and could rise this year.

The Gokhran of Russia began purchasing diamonds from ALROSA against the backdrop of sanctions from the EU and G7 countries, sources familiar with the situation told Kommersant. The publication was the first to report diamond purchases Rough & Polished. According to his information, the purchase was carried out according to a December agreement between ALROSA and the Ministry of Finance, which is subordinate to Gokhran. The purchase was made in March. The possibility of new purchases cannot be ruled out before the end of the year. Specific volumes and amounts are not mentioned. The batch of diamonds purchased by Gokhran contains diamonds of various sizes. ALROSA, the Ministry of Finance and Gokhran did not provide comments.

The decision came as a surprise, since back in January, Deputy Minister of Finance Alexey Moiseev saidthat there is no need to purchase diamonds from ALROSA.

“The company has a colossal margin of safety; it has negative net debt, and by a large margin,” he noted. ALROSA has been included in the SDN list since 2022, but until recently the sanctions did not have a serious effect on the company. In 2023, ALROSA increased revenue by 9%, to 322.57 billion rubles, net profit fell by 15% to 85.2 billion rubles.

However, Western countries this year tightened sanctions against Russian diamonds. On January 1, a ban on the direct import of diamonds from the Russian Federation to the EU came into force. From March 1, Russian diamonds over 1 carat were prohibited from being transported to the markets of the EU and G7 countries, even if they were cut in third countries. On September 1, a ban on the import of lab-grown diamonds, jewelry and watches containing Russian diamonds will come into force. According to EU authorities, Russia receives €4 billion annually from diamond sales.

The decision to ban the import of Russian-origin diamonds has caused problems at Belgian customs, as they are now forced to check all stones that arrive in Antwerp, one of the world’s largest diamond trading centers. According to the industry news agency Rapaport, citing dealers in Antwerp, after March 1, diamonds began to be delayed at customs for more than a week, which entails an increase in dealers’ costs.

The purchase of diamonds by Gokhran is an extremely rarely used support measure. It was last used on a large scale during the 2008–2009 crisis, when spot sales of diamonds were not carried out for almost nine months.

Then Gokhran bought $1 billion worth of products from ALROSA, and a few years later sold them for a significant profit. The last relatively large purchases were made in 2012, when diamonds worth $250 million were purchased. The Ministry of Finance considered the possibility of buying back diamonds in 2020 amid the coronavirus pandemic and the halt in ALROSA sales, but in the end the measure was not required, since sales recovered in the second half of 2020. Then the company noted that if the buyout had taken place, it could have been at a price significantly lower than the market price.

The purchase from Gokhran may not be as large this time, as the diamond markets are experiencing a recovery. According to My Investments analysts, in February total diamond imports into India, which accounts for more than 90% of the world’s cutting, grew by 8% year-on-year to 15.2 million carats. Diamond prices are now at very low levels as the market passes through the bottom of the cycle, analysts say. “From current levels, which we consider the “floor” for the current cycle, prices have significant growth potential against the background of depletion of reserves in the cutting sector – destocking began in early 2023 against the backdrop of rising rates (provision of financing.— “Kommersant”) for cutters,” says their commentary.

Evgeniy Zainullin