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For Alrosa, Q1 Was a Tale of Two Halves
Like many companies, the diamond miner started off the year strong before business took a nosedive in February.
Alrosa started the first quarter with diamond sales up 15 percent over Q4 2019, but that changed in February as coronavirus started its global spread. Overall, gem-quality rough diamond sales dropped 10 percent year-over-year in Q1.
Moscow—Preliminary sales results released Thursday show the first quarter painted two different pictures for Alrosa.
Coming off a December and January in which diamond sales were “quite robust,” the mining company saw rough diamond sales increase 15 percent quarter-over-quarter to 9.4 million carats in the first half of Q1, with sales of gem-quality diamonds climbing 19 percent from the previous quarter amid a “gradual recovery in diamond demand.”
That changed in February, when the spread of COVID-19 brought markets worldwide to a halt.
Gem-quality rough diamond sales ended up being down 10 percent year-over-year in the first quarter, while industrial diamond sales dropped 13 percent.
Revenue from rough and polished sales declined 1 percent quarter-over-quarter and 10 percent year-over-year to $904 million, including $881 million in revenue from rough diamond sales and $23 million in polished.
Alrosa said the average realized price for gem-quality diamonds was $123/carat, down 17 percent quarter-over-quarter due to increased demand for bigger diamonds at the end of 2019 and flat year-over-year.
The diamond price index was down 1 percent quarter-over-quarter and 2 percent year-to-date in Q1.
Diamond production grew 2 percent year-over-year but was down 9 percent from the fourth quarter to 8 million carats. The year-over-year growth was due to increasing production at the Jubilee pipe and at the Aikhal and International underground mines.
Commenting on its first-quarter results, Alrosa noted 2020 started off relatively strong but then took a nosedive starting in February.
It said: “The diamond industry started 2020 in good shape as consumer sentiment improved across key markets for diamond jewelry, inventories at the midstream normalized, polished diamonds prices began to recover, and diamond sales were quite robust in December and January.
“However, the trend reversed as early as February, following the closure of markets in China and Hong Kong. The plunge worsened after COVID-19 spread to Europe and the U.S. The coronavirus pandemic had an impact on the economy across the world.”
The company is looking to China to spark the start of the recovery for the diamond business, noting it was the first hit but also the first to recover. It said the country will be “a key driver” as demand starts to pick up again.
Like De Beers, which canceled its most recent sight, Alrosa is allowing clients to defer diamond purchases while markets remain stagnant.
Looking ahead to the rest of
2020, Alrosa has production pegged at 34.2 million carats, down from 39 million last year and the 38 million originally forecast, while sales volumes are too difficult to predict right now.
The company said sales will “depend on the COVID-19 epidemiological situation and respective measures taken globally.”
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