Efforts by Russia’s Alrosa, the world’s largest producer of rough diamonds, to convince one of its major Chinese customers to trade in a currency other than US dollars, has finally paid off as it seeks to get around US sanctions.
Evgeny Agureev, Alrosa’s director of sales, told the Post on the sidelines of the Hong Kong International Jewellery Show that it has signed up Chow Sang Sang Jewellery on a long-term contract this year. But he not disclose details such as volume and prices.
The pair will trade in euros as part of a pilot project, according to officials at both companies.
Since 2018, the company has been actively encouraging customers in Europe, India and China to deal with it in roubles or euros to help it get around sanctions imposed by the Trump administration on over 200 Russian businesspeople, officials, banks and companies the US considers as “suspected serious and continued threat” to its security.
An Alrosa spokeswoman said that although the company is included in the so-called “Kremlin list” for possible sanctions, it has not been affected by any sanctions and has maintained its operations in the US last year.
Chow San Sang’s signing is a positive start for the Mirny, Sakha Republic-based Alrosa, as the miner girds up for a tough year, amid a slowing Chinese economy and an ongoing trade war with the US.
It has however, not been immune to slowing sales on the mainland.
“The China market is very important for us ... selling directly here has been a difficult journey, as people here like to start with small quantities and gradually build up their trust,” Agureev said.
A Chow Sang Sang spokeswoman said it has yet to see merit in ditching the convention of dealing in US dollars.
“We started a small euro trade as pilot. There is no advantage so far by trading in euro,” she told the Post.
After witnessing weak sales in the fourth quarter of 2018 and in the first two months of this year, Alrosa is aiming to avoid a sales decline in the world’s second largest economy in 2019, Agureev said.
“Usually the first quarter is the biggest sales season,” Agureev said. “We are not talking about growing, we are talking about stability ... the past two months have been absolutely different from the previous two years.”
He added that the whole industry has seen weak sales and was hoping to tide over this difficult period.
The company has set itself a sales target of US$180 million in the China – the same as last year. China accounts for 4 per cent of its total sales.
“This year will be tough for sure for all players, and it will present different dynamics and volatility ... China’s economy is still growing, but not as fast as before, and end users have reduced spending on luxury items since the fourth quarter amid uncertainties brought on by the US-China trade war,” he said.
Sales are likely to improve in April once there is some clarity on the trade talks and global economic outlook, he added.
Retail revenue in mainland China rose 8.5 per cent during the Lunar New Year holiday, down from 10 per cent last year, which was the lowest growth rate since the government began publishing holiday sales data a decade ago.
Alrosa’s global revenue rose 6 per cent last year to US$4.5 billion, but sales volume dropped 8 per cent to 38.1 million carats, as per carat average selling price rose.
Alrosa is set to report full-year results later this month. It is forecast to post a 9.8 per cent rise in net profit to 98.6 billion roubles (US$1.5 billion) for 2018, according to 13 analysts polled by Bloomberg.
For this year, they expect a profit growth of just 2 per cent, with a 0.7 per cent drop in revenues to 298.9 billion roubles.