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How much does Russia earn from diamonds?

After the outbreak of the conflict in Ukraine, dealers in Antwerp (Belgium) were asked to boycott Russian stones. By November 2023, Western countries want to make the boycott official by introducing an official ban on Russian stones. A G7 announcement has been expected for weeks, but disagreements over details are delaying the process – Reuters.

Diamond exports to Belgium rise by 36% in January

Diamond exports from the Russian Federation to Belgium in January 2023 increased by 36%.

2022

Russia is the largest producer and exporter of diamonds in the world with a record share of 35% of the world market or 41,9 million carats

Russia is the largest producer and exporter of diamonds in the world, the world’s largest diamond mine is located in Yakutia. According to forecasts from the consulting company Bain, by the end of 2022, 33% of production will come from Russia, 19% from Botswana, 15% from Canada, and significant volumes of stones are also mined in Congo, South Africa, Angola and Australia. At the same time, the world’s diamond reserves at this time amount to about 1,8 million carats. As of November 2023, Russia, by the end of 2022, for the first time occupied 35% of the global diamond production market. Before this, the country occupied from 22% to 33% of the market in this area for many years. During the year, the world produced 119,96 million carats, of which 41,9 million were produced in Russia.

The Russian government has approved zero VAT on the purchase of polished and rough diamonds

The Russian government has approved amendments to the Tax Code to introduce a zero VAT rate (previously it was at 20%) on the purchase of polished and rough diamonds by Russians. Deputy Minister of Finance Alexey Moiseev announced this on June 23, 2022. According to him, innovations will help stimulate citizens’ demand for investment diamonds and sell them more efficiently within Russia. At the same time, at the end of May 2022, Moiseev said that the Ministry of Finance was not considering abolishing VAT on the purchase of diamonds by individuals. The Russian government has approved zero VAT on the purchase of polished and rough diamonds The document approved by the government introduces precious metals in bullion into investment circulation, exempting from value added tax transactions involving the sale by banks to individuals of precious metals in bullion withdrawn from storage. The norm applies to legal relations arising from March 1, 2022. Boris Krasnozhenov, head of the securities market analysis department at Alfa Bank, believes that with the abolition of VAT, the demand for diamonds for investment will increase, as evidenced by the multiple increase in gold sales by banks after a similar measure. Astra Group has grown to two dozen companies. Key ecosystem assets I think this is one of the important steps, because after all, we are talking about 20%. In this case, of course, additional steps are required to improve liquidity on the part of the same private banks in order to advertise the asset to their clients and promote it. It is clear that liquidity is related to the sale of diamonds, and this requires access to auctions and exchanges,” he said in a conversation with Kommersant FM. At the beginning of June 2022, the Kommersant newspaper reported that Russia had reduced diamond exports to key markets – India and Europe. However, due to rising prices for raw materials, Russian companies did not lose revenue. [1]

2021: Reduction in diamond production by 31,1%, to 31,2 million carats

At the end of 2020, diamond production in Russia amounted to 31,2 million carats, which is 31,1% less than in 2019. In terms of money, the figure decreased even more – by 45,2%, to $2,26 billion. The average price of diamonds over the year decreased from $90,93 to $72,3 per carat. This is evidenced by data from the Ministry of Finance of the Russian Federation. As the Prime agency reports, citing department statistics, diamond exports from Russia in 2020 amounted to 38,6 million carats, which is 1,6% less than a year ago. In monetary terms, the volume of exports decreased by 15,9%, to $2,95 billion. The largest quantities of Russian diamonds at the end of 2020 were supplied to Belgium (19,74 million carats worth $1,31 billion), the UAE (14,1 million carats worth $794,5 million) and India (4,1 million carats worth $638 million ). Russia has sharply reduced diamond production by more than 30% As for imports, in 2020, 310,5 thousand carats of diamonds were imported into Russia (-70,4% compared to 2019) worth $109,1 million (-63,4%). The largest Russian diamond mining company, Alrosa, reduced diamond production in 2020 by 22% compared to 2019 – to 30 million carats. The company’s diamond sales decreased by 4%, to 32,1 million carats. Diamond sales in Russia and around the world took a hit after countries imposed quarantine and closed borders due to the COVID-19 coronavirus pandemic. According to Alrosa Deputy General Director Evgeny Agureev, this limited, and in some cases completely blocked, trade. The market was supported by the partial shift of sales online, as well as consumers who were unable to spend their money on travel and ended up buying jewelry. According to experts, the diamond market continued to experience difficult times in 2020. Firstly, the fashion for diamonds is going away. Secondly, the market for natural stones is under strong pressure from developing technologies for the synthesis of diamonds artificially grown in laboratory conditions. [2]

Notes

  1. ↑The government approved a zero VAT rate on the purchase of rough and polished diamonds
  2. ↑Russia reduced diamond production by a third in 2020

The net profit of the diamond mining company Alrosa at the end of 2023 amounted to 85,2 billion rubles, as follows from the IFRS report published on February 28. This is 15% less than in 2022.

The company’s consolidated revenue for the year increased by 9% and amounted to 322,6 billion rubles, cost of sales – by 14% to 175,6 billion rubles. The company resumed publishing financial statements in the second half of 2023; data was not disclosed in 2022.

Alrosa’s capital expenditures doubled to RUB 64 billion. NRA attributes the increase in the indicator to the restoration last year of the Mir mine in Yakutia, which was flooded in 2017. The company’s costs for imported equipment and for maintaining its main assets in working order have also increased, says Sergei Grishunin, managing director of the NRA rating service.

The group’s net cash flow for 2023 decreased by a quarter to RUB 65,85 billion. The company’s total liabilities amounted to 214,75 billion rubles, which is 8% more than a year earlier. Grishunin notes that the debt burden “remains moderate” relative to operating income, which should not cause problems with raising new debt or replacing expiring liabilities.

The company paid windfall tax in the amount of almost 2023 billion rubles in 1,5, the reports say. We are talking about a one-time fee from companies whose average profit for 2021-2022 turned out to be above 1 billion rubles. Alrosa was able to reduce the amount of payments by making a security deposit, it follows from the report.

Over the past year, the estimate of Alrosa’s diamond reserves increased by 61%, amounting to 84,27 billion rubles. For comparison: as of mid-2023, their value was 46,8 billion rubles. The overall estimate of the company’s reserves (diamonds, mining materials, ore, polished diamonds, etc.) over the same period increased by 36% to RUB 181,8 billion.

Alrosa accounts for more than 90% of diamond production in Russia. The company sells most of them in rough form: in 2021, revenue from the sale of polished diamonds amounted to only 5%, or $192 million, with total revenue of $4,2 billion. At the end of 2023, Alrosa reduced diamond production by 2,8. 34,6% annualized to XNUMX million carats.

American Rapaport warned of a threat to the diamond market due to sanctions

Russia produces approximately a third of all diamonds in the world. According to the latest data from the Kimberley Process (an organization of diamond-producing and diamond importing countries), in 2022, global diamond production increased by 1% to 120 million carats, and Russia increased production by 7% to 41,9 million carats. Exports of Russian diamonds fell by 24% to 36,7 million carats. Global diamond exports (including traded reserves) decreased by 2022% in 21 to 331,5 million carats. Data for 2023 is not yet available.

Last December, the European Union (EU) approved the 12th package of sanctions, which contains a ban on the direct or indirect import, purchase and transit of diamonds and jewelry from Russia. Restrictions apply to diamonds mined in the Russian Federation, exported from Russia, as well as to stones cut in third countries, according to an official EU statement. The embargo came into force on January 1, 2024.

A month later, in February 2024, sanctions restrictions were introduced by the United States. The US Treasury Department’s Office of Foreign Assets Control (OFAC) has banned the import of Russian non-industrial diamonds and diamond jewelry into the country. The new sanctions affected stones that were “mined, extracted, produced or manufactured in whole or in part on Russian territory.” The ban on the supply of Russian diamonds weighing over 1 carat will come into force on March 1, and from 0,5 carats on September 1 of this year.

Personal sanctions were also imposed against Alrosa CEO Pavel Marinychev. In addition, large international jewelry retailers Tiffany Signet Jewelers and Richemont refused to purchase diamonds of Russian origin back in 2022 (Vedomosti wrote about this on March 22, 2022).

The sanctions caused an increase in the company’s costs, which led to a decrease in net profit, Grishunin believes. Senior analyst at Sinara Bank Dmitry Smolin connects the drop in profit with a decrease in other operating income – for example, in 2022 Alrosa earned 15 billion rubles. from the sale of foreign currency, but in 2023 this item was missing.

The volume of the global diamond market last year was at the level of $105-110 billion, or 110-120 million carats, says Grishunin. The market for cut diamonds is $28 billion. NRA predicts an increase in demand in 2024 to 112-122 million carats.

Prices for rough and polished diamonds on the world market decreased in 2023. According to the American Rapaport (which owns the largest diamond trading platform in the United States, RapNet), in June 2023, prices for 1-carat diamonds fell to their lowest level since November 2020. Diamonds have been falling in price on the world market since the spring of 2022, when the IDEX price index reached a historical high of 158,4 points. From January to December 2023, IDEX decreased by 16,5% to 109,8 points, on February 28, 2024 it stood at 109,1 points.

According to Boris Krasnozhenov, head of the securities markets analytics department at Alfa Bank, in 2023 the cost of gem-quality diamonds on the world market was in the range of $155-160 per carat. Against the backdrop of a shortage due to sanctions against Russian stones, the analyst expects a significant increase in prices this year.

According to Alrosa’s dividend policy, at least 50% of net profit is allocated to dividends. Alfa Bank analysts believe that payments to shareholders for the second half of 2023 will be at the level of 1,77 rubles. per share, which is equivalent to a yield of 2,5%. The company’s securities during trading on February 28 on the Moscow Exchange lost about 2,1% on corporate news, the price dropped to 71,55 rubles. per share.

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Online publication Vedomosti

Decision of the Federal Service for Supervision of Communications, Information Technologies and Mass Communications (Roskomnadzor) dated November 27, 2020 EL No. FS 77-79546

Founder: Business News Media JSC

And about. editor-in-chief: Kazmina Irina Sergeevna

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Any use of materials is permitted only if the rules of reprinting are observed and if there is a hyperlink to vedomosti.ru

News, analytics, forecasts and other materials, presented on the data site, are not offered or recommended for purchase or sale of any assets.

The information resource uses recommendation technologies (information technologies for providing information based on the collection, systematization and analysis of information related to the preferences of Internet users located on the territory of the Russian Federation).

All rights reserved © JSC Business News Media, INN/KPP 7712108141/771501001, OGRN 1027739124775, 127018, Moscow, st. Polkovaya, building 3 building 1, room I, floor 2, room 21. 1999—2024

Online publication Vedomosti

Decision of the Federal Service for Supervision of Communications, Information Technologies and Mass Communications (Roskomnadzor) dated November 27, 2020 EL No. FS 77-79546

Founder: Business News Media JSC

And about. editor-in-chief: Kazmina Irina Sergeevna

The site uses IP addresses, cookies and geolocation data of site users; the terms of use are contained in the Personal Data Protection Policy

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