Alrosa CEO Says Jump in Rough-Diamond Prices May Signal Bubble
Alrosa, the world’s largest diamond miner by output, said prices for rough gems exceed pre- crisis levels and are growing faster than forecast, potentially signaling a bubble in the market.
“At the end of last year we increased the price by 5 percent, and this year we increased the price more than 10 percent,” Alrosa Chief Executive Officer Fyodor Andreev said in a Bloomberg Television interview. “Now our price is 8 percent more than it was before the 2008 crisis.”
Prices of rough, or unpolished, diamonds have returned to levels last seen in June 2008, after producers including De Beers, Alrosa’s biggest competitor, cut output and gem dealers rebuilt stockpiles. The market has also benefited from a rebound in U.S. demand and growing consumption in emerging economies.
Alrosa sales may rise to $4 billion this year from $3.4 billion last year, reaching a target initially planned for 2018, Andreev said. Soaring prices for rough diamonds, which at times exceed those for polished gems, are a “dangerous signal” that a bubble may emerge, as in 2008, he said, adding that Alrosa sells about 70 percent of its stones under long-term contracts.
While the producer mainly trades though Antwerp in Belgium, the traditional market for diamonds, it has signed long-term contracts with three Indian companies and is seeking deals in China, Andreev said. Alrosa is less “optimistic” than analysts about the strength of these new markets, he said.
African Production
The global diamond industry, structured around the four biggest producers -- De Beers, Alrosa, Rio Tinto Plc (RIO) and BHP Billiton Ltd. -- may change in coming years as African states seek a foothold in the market, Andreev said.
“All governments in Africa would like to create their own diamond companies,” he said. “Because of this strategy we may get an additional three to five quite big companies in the future.”
In South Africa, members of the ruling African National Congress have called for mining to be nationalized, saying the country doesn’t derive enough benefit from the industry. South Africa is the largest producer of platinum and the second- biggest miner of palladium, according to data compiled by Bloomberg. Mineral Resources Minister Susan Shabangu said March 9 that the country won’t nationalize its mines.
The world’s biggest diamond mine by production value is De Beers’ Jwaneng venture in Botswana. The southern African country, which accounts for about a fifth of global output, has boosted gem production since 2009, when the global financial crisis slashed demand and led to the temporary closure of mines.
To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net; Ryan Chilcote in London at rchilcote@bloomberg.net.
To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net
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