INTERVIEW WITH Evgeny Agureev, Director – United Selling Organisation, ALROSA (Interview at The Retail Jeweller website)
ALROSA, the diamond mining giant from Russia maintains a moderately positive outlook towards the global diamond market demand. In an interview with The Retail Jeweller, Evgeny Agureev, Director – United Selling Organisation, ALROSA talks about the ALROSA’s focus on responding to the market challenges more rapidly.
The Retail Jeweller (TRJ): What is the significance of the latest long-term contract signing with 67 companies, given the present global market scenario? How significant is the development where 14 manufacturing companies from India signed agreements with ALROSA?
Evgeny Agureev (EA): Long-term contracts are the basis of ALROSA sales strategy. The company is working on such contracts since 2009, and during the period, this arrangement has repeatedly proven its effectiveness. A long-term contract guarantees stable sales for the company and stable supplies, in terms of quantity and quality to the customers. This system protects both ALROSA and client from the volatility of diamond prices. Today, 70% of ALROSA diamonds (in terms of value) are sold under such contracts. The remaining part is sold through auctions and spot sales.
Every three years the company builds a new list of long-term customers. Overall, in the new contract period, ALROSA formed a diversified and well-balanced list from the point of view of geography and profile. This year we have 56 buyers of gem-quality diamonds and 11 buyers of industrial diamonds. As you know, there are 14 companies from India among them. ALROSA, as a matter of fact, is working very closely with the buyers from India. Today, India is the largest cutting centre in the world.
The client list may be expanded during the year, as it is a normal practice. To add to that practice, ALROSA has expanded the list of ALROSA ALLIANCE participants and added another 11 companies to it. These companies have already been working with ALROSA in the framework of spot sales and have proved themselves responsible market participants. To celebrate their merits, we have already allowed them to use the quality mark ALROSA ALLIANCE and thereby demonstrating to the market that they work in accordance with the best business practices.
TRJ: How do you compare the present contract period (2018-2020) compared to the previous contract periods in terms of demand trend and market dynamics?
EA: In the new period, ALROSA has some innovations. Previously, the company negotiated with the customers the volume and range of supplies for all three years. Now ALROSA is becoming more flexible and allows more flexibility to its customers. The new contract is for three years, but the volume and range of goods are subjects to be discussed and changed each year based on the efficiency of working with ALROSA for the previous 12-month period. It is important, for example, when the client changes its profile and understands that it is more profitable to work in other categories of rough diamonds, or when the client changes the volume of its business. The market today is changing rapidly, and the yearly review allows clients and ALROSA to work more efficiently.
TRJ: What kind of outlook Alrosa has for the Global market for the next three years? What kind of demand trend are you expecting, going forward in roughs?
EA: ALROSA doesn’t expect any significant market fluctuations in 2018. We believe that the demand for rough diamonds will be stable as well as the world supply, and therefore, we don’t see any preconditions for prices volatility. Preliminary results of ALROSA January trading session are quite good, the company sees steady demand for all categories of rough diamonds.
Overall, ALROSA forecast on the global diamond market is moderately positive. There are some fundamental factors influencing the global market. According to experts, the global volume of supply will not increase, because the existing deposits of all companies are gradually exhausting, and there were only a few large discoveries over the past decades. Demand for diamond jewellery, according to expert estimations, will grow 1-4% a year driven by the US, China and India. Recently, the GfK research group carried out a major study of consumers in China and the United States in cooperation with ALROSA. The study showed that 86% of respondents in China and 59% of respondents in the U.S. are willing to buy at least one jewellery piece with the natural diamond over the next year, and in the past, many of them bought not even one but several pieces a year. This finding confirms that the consumers are still interested in diamonds, ready to buy them and recommend them to their friends as a gift.
In addition, I think that in the medium term, the market will see the positive results of the Diamond Producers Association (DPA) generic marketing efforts. The Association is now conducting a large-scale marketing campaign in the United States and India to strengthen consumer demand for diamonds, and will also launch another campaign in China.
TRJ: What kind of facilities and support will Alrosa offer to the companies especially companies from India during 2018-2020?
EA: ALROSA now has a very transparent sales system, ensuring equal conditions of doing business and equal conditions of access to goods for every consumer. It is very important for the diamond market, which is based on trust. As I have already mentioned, the new long-term contracts of ALROSA are very flexible, allowing customers to effectively conduct business and be less dependent on market fluctuations. In addition, ALROSA is now significantly amplifying customer service and analytics to respond to market changes more rapidly, be aware of what is happening in each region, and constantly be in a mutually beneficial dialogue. It’s one of the reasons why the company opened an office in India, and I’m glad I can be a part of this improvement process.
TRJ: There are few diamond manufacturers from India who have shown interest in setting up diamond manufacturing units. What role will these agreements play in facilitating that prospect?
EA: Indeed, Vladivostok today is rapidly developing as one of the new centres of the diamond business in Russia, including diamond cutting. Some companies are already successfully working there, including companies from India, and ALROSA supports them through long-term agreements and the governmental program of beneficiation. I think it is a mutually beneficial process: it helps in developing the global diamond market and trade, as well as creating new jobs and driving the economic development of the region.
TRJ: Bharat Diamonds Bourse had offered to form a joint venture with ALROSA. What kind of outlook ALROSA has on this development?
EA: ALROSA has a long successful history of cooperation with India, especially with the industry organizations of India. The company is carefully studying all the proposals for cooperation that come from India. In fact, the India office of ALROSA has been mandated to actively engage in dialogue with local companies and industry organizations and to facilitate the possible expansion of cooperation.