The interview on FT website
State-owned miner tests rouble payment system as both countries turn sceptical on dollar
The world’s largest diamond producer, Russia’s Alrosa, is increasing its marketing spend in China as it attempts to catch up with rival De Beers in a market that has returned to strong growth. The state-owned company sold diamonds worth $180m in China last year.
“It is still less than 5 per cent of Alrosa’s global sales, but it’s just the beginning,” said Sergey Ivanov, the company’s chief executive. “Strengthening and developing our relationship with Chinese consumers, especially with local jewellery retailers, are among our main goals today. We will invest more in marketing and brand building,” added Mr Ivanov, who was appointed last year.
Alrosa is the world’s largest producer of rough diamonds in carat terms. Along with Anglo American’s De Beers unit, it produces roughly half the world’s rough diamonds. Alrosa reported 40 per cent year-on-year net profit growth in the first quarter of 2018 to Rbs33.2bn amid an improving global diamond market.
But De Beers is ahead in the Chinese market, with 1,000 stores that generate more than 14 per cent of the company’s sales. Alrosa entered the Chinese market in 2010 and has contracts with six Chinese companies including the country’s largest jewellery chain, Chow Tai Fook.
Analysts expect economic growth in China and India to be the diamond market’s main driver over the next decade. After stalling in 2016 amid worries about the economy, Chinese diamond sales returned to growth in 2017 amid a nationwide recovery in luxury spending, according to consultancy Bain. Chow Tai Fook, seen as a bellwether for middle-class Chinese consumers’ jewellery demand, reported 34 per cent annual year-on-year profit growth in June while same-store sales in mainland China grew 8 per cent year-on-year.
“There are positive trends in the Chinese market with rather good demand from the mass segment,” Mr Ivanov told the FT. He cited research commissioned by Alrosa showing that 86 per cent of Chinese consumers plan to purchase diamond jewellery in the next year compared to 59 per cent of consumers in the US, the world’s largest diamond market. The average price paid by mainland Chinese customers for diamond jewellery is $4,000, he added.
Alrosa’s long-term Chinese clients previously purchased the company’s diamonds through intermediary wholesalers, but the company is arranging more direct auctions in China. It held two auctions of large diamonds in Hong Kong this year and will arrange another next month.
The company’s push into China comes as diplomatic ties between Beijing and Moscow become closer. Both governments have tense relations with the US and have expressed scepticism about the role of the dollar as the main currency of global trade.
Alrosa said this month that it had tested a system that allowed foreign clients to pay in roubles. A Chinese company paid for diamonds purchased at auction in Hong Kong using the Russian currency via a Shanghai branch of Russian bank VTB. “From now forth, we will offer this as an option for our clients in China,” said Evgeny Agureev, Alrosa's director of sales, adding: “It might result in the increase of sales in roubles in the future.”