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Russia’s Alrosa kicks off rupee-rouble payments for diamond trade in India

Anil Sasi
India accounted for over $2 billion rough diamond sales in 2018

Russian state-owned miner Alrosa PJSC, the world's biggest producer of rough diamonds in carat terms, has initiated a rupee-rouble payment mechanism with its Indian clients and has kicked-off transactions with four-five companies here, a senior company executive said.

Alrosa is increasing its marketing spend in India as it attempts to catch up with rival De Beers in a market that is predicted to see a rebound in 2019.

"Alrosa recorded rough diamond sales of over $533 million in just the first quarter of 2019, Evgeny Agureev, director of the United Selling Organisation of Alrosa - the company's sales pision - said. India accounted for sales of over $2 billion in 2018 and $700 million in 2017 of rough diamond sales for the Russian firm.

Alrosa and De Beers - the diamond exploration and marketing unit of multinational mining firm Anglo American - produce nearly half the world's rough diamonds. India is the biggest cutter and polisher of diamonds globally.

Having successfully tested the rouble payment mechanism with select Indian and Chinese clients late last year, Agureev said that while sanctions by the US on Russia did not directly affect Alrosa (since the company had floated a mechanism for rouble-denominated rough diamond sales well before the sanctions were imposed), this was a hedge against the overwhelming dominance of the US dollar in the international rough diamond market settlements.

"Now we are actively developing practice of non-dollar deals. Currently, there are four-five companies that consistently buy in other currencies. And they buy not only in rupees or roubles, but also in euros. Feedback from the companies is positive, the mechanism has been adjusted, and now we do not face technical difficulties which we dealt with at the initial stage. The total sum of completed transactions already amounts to tens of millions of dollars," Agureev told The Indian Express.

Last year, Alrosa had signed long-term agreements with 18 Indian companies. Overall, 173 companies from India buy Alrosa's diamonds at auctions and through one-time contracts, Agureev said.

Globally, the poor demand for stones valued at less than $100 a carat has been affecting diamond companies, primarily due to a supply glut, combined with the weakness of the Indian rupee and the difficulty faced by gem cutters in accessing financing here after the Nirav Modi controversy.

Analysts expect the oversupply of smaller sized diamonds globally resulting from large production in Russia and Australia to ease in the coming months as demand improves.

While the rupee had fallen nearly 6 per cent against the dollar over the last year, the slide has been arrested this year, with the rupee gaining nearly 2 cent against the greenback over the last three months. The rebound in the rupee is being seen as a positive for the market. Plus, demand has been steady in the US since the beginning of this year while the Indian market has see a strengthening since the fourth quarter of last year after a weak first half of 2018.

In 2018, Alrosa's total diamond sales grew six per cent year-on-year to $4.5 billion, with rough diamond sales pegged at $4.4 billion and polished diamond sales at $95.3 million. De Beers' sales increased four per cent to $6.1 billion in 2018, with rough diamond sales increasing by four per cent to $5.4 billion.

Preliminary data for 2019, according to De Beers, indicated an improvement in global consumer demand for diamond jewellery, in US dollar terms. In India, the problem of reduced local demand-primarily attributed to the significant depreciation of the rupee in US dollar terms-is getting eased.

According to Mark Cutifani, CEO, Anglo American, "Although current economic forecasts remain positive, the outlook for 2019 global diamond jewellery consumer demand faces a number of headwinds, including the risk of a potential intensification of US-China trade tensions, the Chinese government's ability to rebalance economic growth towards consumption, and further exchange rate volatility."

"Production in 2019 is expected to be in the range of 31-33 million carats, subject to trading conditions," Cutifani had said at the Anglo American preliminary results announcement for 2018 on February 21.

On investments by Indian companies in the Russian diamond value chain, Agureev said that Russia is focusing on developing its own cutting and polishing industry and that KGK Group (a Hong Kong-based company promoted by Indian-origin businessman Navrattan Kothari) had invested around $50 million in setting up a diamond cutting and polishing factory in Vlapostok in Russia's Far East region.

"KGK Group has been developing cooperation with Russia for a long time now. The cutting factory in Vlapostok is a result of cooperation of Alrosa and the leading global producer of precious stones and jewelry, the KGK Group. KGK became one of the first foreign companies that took advantage of the preferential regime of the Free Port of Vlapostok, having obtained the resident status for its subsidiary," Agureev said, adding that he expects Indian firms to tap into the Russian diamond value chain.