Russian Cutters Prefer Imported Rough Diamonds

Alrosa has lifted prices for its rough by 20% to 25%, said Ararat Evoyan, head of the Russian Association of Diamond Manufacturers. "The stones have become more expensive than imports. It is cheaper to buy in Belgium now, although import schemes are very complicated, and so we are now working on the simplification of these schemes. We will announce our official reaction of the association on June 25,” he told Polished Prices.

In addition to the pressure of the new prices this month, next month Alrosa has said it will end its VAT deferred payment scheme, thereby increasing the upfront cash requirement on the part of the domestic cutters.

On top of this Evoyan said: "The summer season is usually a dead season for diamond industry. Work usually starts after September 20."

He added the domestic Russian problems coincide with the falling demand position in the US diamond market.

Edward Shtribesky, spokesman for leading Russian polisher Smolensk Kristall, said: "Since Alrosa considers this (price increase) as a normal step in the frame of market economy, which we seriously doubt, we have to apply our reaction. We must buy abroad simply to survive." He said Kristall has raised the value of rough imports since January of this year fivefold, compared to the same period of 2007 - from $10 million to about $50 million.

Maxim Shkadov, the Kristall chief executive, said that prices had grown by 6% in the first five months of the year, before Alrosa issued its June 1 increase.

Foreign suppliers are now "a lot less expensive," according to Shkadov. The result will be an increase in Kristall's prices for polished, he said.

"We’ll definitely have to raise our own prices, but we can't do that in jumps of more than 15%. We're expecting sales to drop until we get an analytical assessment of the market, so we can tell how we need to operate."

Until now, Kristall buys about two-thirds of its rough from Alrosa, paying a total for rough of about $250 million per annum. In 2007, Kristall generated $404.4 million in sales, up 13% on 2006. The plant's capacity is around 1 million carats per year.