Sourcing

Alrosa Says It’s Starting to See Recovery in China

SourcingJun 08, 2020

Alrosa Says It’s Starting to See Recovery in China

Diamond jewelry sales in Asian markets are “bouncing back,” and the miner expects demand to increase as soon as July.

Alrosa saw sales of diamonds (both gem-quality and industrial) drop 11 percent year-over-year in the first quarter, but the diamond miner said it’s starting to see signs of a recovery in Asian markets.

Moscow—Alrosa said Friday diamond jewelry sales are starting to show signs of life in Asian markets as retail stores reopen and shoppers return as the coronavirus pandemic abates, at least for now.

“Today, we see diamond jewelry sales bouncing back in China and other Asian markets, which is expected to drive diamond demand up as soon as July [or] August,” said Alrosa Chief Financial Officer Alexey Philippovskiy as the company announced its full first quarter results on Friday.

Diamond sales (both gem-quality and industrial) were down 11 percent year-over-year in the quarter for the diamond miner, sliding to 9.4 million carats from 10.6 million carats in Q1 2019.

Revenue also slid 11 percent due to COVID-19 and a drop in diamond prices, totaling $917.5 million compared with $1.03 billion a year ago.

Net profit fell from $351 million to $43.7 million year-over-year due to non-cash factors (foreign exchange loss of 21 billion rubles, $305.7 million, resulting from the re-evaluation of foreign currency debt).

Philippovskiy said the year got off to a “healthy” start, as diamond demand recovered in key markets, retail and midstream stock levels normalized, and the leverage of Indian polishers returned to historical averages.

Demand began to decline around the middle of February as it became clear that COVID-19 was spreading.

He said the situation escalated in March, with sales dropping “considerably” as business closed and governments issued stay-at-home orders worldwide.

The following month, Alrosa allowed its long-term customers to completely suspend purchases for the time being, pushing required purchase amounts to future months.

As previously announced, the diamond miner will cut production this year by as much as 18 percent, specifically shuttering mines that produce lower-quality diamonds.

The Aikhal underground mine and the Zarya open-pit mine closed in mid-May while the Verkhne-Munskoye deposit was shut down this month.

On Thursday, Alrosa announced the Lomonosov division of Severalmaz would cut production as well.

Processing was suspended on May 16. It will resume on July 1 for three months before shutting down again until the end of the year.

The division suspended mining operations on May 12, with resumption scheduled for Nov. 1.

De Beers also will cut production by as much as 26 percent.

Michelle Graffis the editor-in-chief at National Jeweler, directing the publication’s coverage both online and in print.

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