5 Apr 2010 19:10

Alrosa could ship at least $1.4 bln in rough to Russian diamond cutting plants in 3 yrs

MOSCOW. April 5 (Interfax) - Alrosa plans to supply at least $1.4 billion in rough diamonds to Russian cutting plants in 2010-2012, the diamond miner told Interfax.

Alrosa's council for market analysis discussed the issue on Monday. "Given that demand is increasing, it was decided to prepare to sign long-term rough diamond supply contracts with the biggest cutting enterprises. Talks will be held with each of the enterprises," the company said.

Alrosa plans to sign contracts with Kristall of Smolensk, Ruis Diamond, EPL Diamonds and two members of the Almazjuvelirexport group.

"Alrosa's sales policy, which was tailored for the export market, now looks as if it is going to apply to the domestic market as well," said Sergei Goryainov, an expert at Rough&Polished. "Alrosa is signing long-term contracts with the cutters it has been working with a long time - the new contracts essentially tidy up existing relations, they are more transparent," the expert said.

The long-term deals are to some extent a means of protecting the market from traders, Goryainov said. "The scheme that has been employed on several occasions is that major cutting enterprises formed small subsidiaries and some of the rough would be sold via them, in trader deals. That practice looks like it could be reduced to a minimum with the long-term contracts," he said.

Maxim Shkadov, general director of Kristall, Russia's biggest cutting plant, said this had indeed been going on. "It happens in any company - its part of the business. Not all of the rough we get in parcels or lots can be used. It needs to be screened. The leftovers go into free circulation in the market, which is really a normal technological operation," Shkadov said.

But Kristall's main goal is to utilize capacity to the full, and the plant "will not be putting any emphasis on trader operations," he said.

In the past, he said, Alrosa would sign either long-term contracts for a year and extendable at the discretion of the parties; or it would sign one-off contracts. It might sign a 12-month contract with a Russian cutting plant but build in monthly subcontracts that regulate the assortment of diamonds.

Shkadov did not say how much rough Kristall planned to buy under the new contracts, but he did say the company wanted to sustain pre-crisis procurement levels. "Our capacity and sales potential allows us to achieve annual turnover of $500 million, and we need to buy the corresponding amount of rough in order to achieve that," he said.