ALROSA has signed contract with Tiffany & Co

As ALROSA adds global jewelry-market players to its customer list, this could lead to a favorable redistribution of high-quality rough diamonds for the company, at the expense of lower supplies to the domestic market.

The Russian diamond company and Laurelton Diamonds Inc., a 100-percent Belgian subsidiary of Tiffany & Co., have signed a three-year contract.

“ALROSA is interested in new customers among the world jewelry producers who can guarantee their purchase of rough diamonds, including the periods of the so-called challenging market. For its part, ALROSA is ready to take action on the redistribution of quality rough diamonds in their favor, as current long-term contracts are expiring,” a source close to the negotiations said, adding that Tiffany is going to buy diamonds in Russia for around $60 million in the first stage.

In 2013, nearly half of the three-year contracts ALROSA signed with their regular customers are set to expire. The company’s website claims there are 24 such customers, but the ALROSA spokesperson says the company has 35 customer companies specializing in diamond cutting.

The last long-term contract was signed two weeks ago with Chow Tai Fook Jewellery Group Ltd. – the leading jewelry manufacturer in China. The contract’s value is almost at $100 million per year.

Information about a possible long-term contract between ALROSA and Tiffany first appeared in 2007, when it was publicly announced by the former president of the Russian company, Sergey Vybornov. Sine then, Tiffany has had a few one-off deals to buy Russian diamonds, but a long-term contract has not been signed, a source close to ALROSA says.

“Tiffany has always been interested in buying high-quality stuff typically qualified as lot selected,” the source said. “Until recently, this category of raw stuff had been almost completely supplied to the domestic market. However, ALROSA’s Russian customers re-sold it abroad. So, there was no sense for Tiffany-level customers to buy diamonds from ALROSA directly. Today, the division into domestic and foreign markets has virtually disappeared.”

These are changes in ALROSA sales policy introduced in 2009. Now, up to 70 percent of raw materials are sold via long-term contracts to regular customers, without dividing them into Russian and foreign ones. In 2012, the Federal Antimonopoly Service approved this trading practice introduced by ALROSA.

Sergey Goryainov, an expert at the agency Rough & Polished, says he also heard that the expected amount of the contract with Tiffany would reach $60 million a year in the first stage.

“Apparently, we can expect significant changes in ALROSA’s customer base in the near future, as in a very challenging environment the company is focusing on attracting major global brands and geographical diversification of its sales,” Goryainov said.

“Until 2009, ALROSA customers had been almost unknown (except for Smolensk-based Kristall and Lev Levaev), as the company’s rough diamonds sales policy was absolutely non-transparent. Now things are changing," he added.

In the future, ALROSA will have to change its product range strategy in favor of the new customers, the expert concludes.

First published in Russian in Kommersant Daily.

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