Investments in clean water

Against the backdrop of sanctions, ALROSA is going to offer Russian buyers investment products based on polished diamonds, including those with the possibility of repurchase at a price linked to market indicators. According to analysts, the advantage of diamonds is the relatively low price volatility and the potential for their growth in the medium term.

ALROSA is preparing to launch investment diamonds on the market, VAT on the purchase of which will be canceled from October 1. The company wants to offer two products – rare large diamonds worth $50,000 or more with an individual price, as well as “diamond baskets” worth $25-50 thousand, which represent a cross-section of the company’s production and will have a single price per carat. ALROSA also offers a storage service for these diamonds. The implementation of the product is expected, including through investment banks, which are now trying to find tools for their clients that can replace deposits in the currencies of “unfriendly” countries.

As Dmitry Amelkin, director of strategic development of the company, explained to Kommersant, the company wants to provide investors with the opportunity to reverse the sale of stones.

In the case of rare diamonds, this is an opportunity to put them up for auctions and ALROSA’s Internet sites. For “diamond baskets”, the company provides a buyback guarantee at a price pegged to international indexes for diamonds included in the basket. The spread to the index “will be competitive,” said Dmitry Amelkin. ALROSA estimates the potential volume of the Russian investment diamond market at $200 million.

ALROSA is under US blocking sanctions and has refused to publish sales data. Bloomberg reported in late August that the company had restored sales to $250 million per month ($50-100 million below pre-sanction figures), selling diamonds mainly for Indian rupees. The resumption of sales was helped by the fact that Indian banks began to conduct transactions in currencies other than the dollar. According to Bloomberg, the return of Russian diamonds removed fears of a shortage in the world market. Disruptions in supplies affected prices for small and cheap diamonds, which ALROSA specializes in.

Adjusted for inflation, current diamond prices are far from their peak levels, says Boris Krasnozhenov from Alfa Bank.

The shortage of gem-quality and polished diamonds will increase due to the depletion of deposits and almost zero reserves around the world, he emphasizes. “The simultaneous growth in demand from emerging markets, mainly China, in the medium and long term creates significant upside potential for polished diamond prices,” the analyst said.

The dynamics of diamond prices varies greatly depending on the size of the stones, Finam’s analyst Alexei Kalachev notes. “Anything less than one carat is worth less now than ten years ago. And everything that is larger is near the historical price highs. And the larger the stones, the better the price dynamics,” the analyst notes.

The volatility of prices for rough and polished diamonds is much lower than for metals or even real estate, Boris Sinitsyn, head of the Renaissance Capital analytical group for metallurgy and mining, comments. In his opinion, this is an additional advantage of this asset class. “But there are also risks of their own that are not inherent in other types of long-term investments – this is competition with other types of jewelry and luxury goods,” the analyst believes. Mr. Sinitsyn also believes that the “diamond basket” with an average cut of production is an interesting product due to buyback. However, the cut of production usually does not change for the better over time due to the introduction of poorer deposits.

Evgeny Zainullin