Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Alrosa (MCX: ALRS), the world’s top diamond miner by output, warned on Friday that global stocks of roughs are nearing multi-year lows, as demand continues to increase with no meaningful supply response from miners.
The Russian producer, which posted results for the three months to September 30, said it had sold 9.2 million carats during the period. That’s a 20% drop from the previous quarter, which Alrosa attributed mainly to the lack of inventories available for sale.
“Rough diamonds stocks at miners are at minimal levels as supply structurally dropped, but jeweller demand is strong in all the key markets,” the company said in the statement.
The diamond market came to a standstill at the height of the covid-19 pandemic, increasing worries that oversupply could hurt the sector for years. But surging purchases by intermediaries who cut, polish and trade stones has all but wiped-out miners’ stockpiles, even as the company and its closest competitor, Anglo American’s De Beers, have hiked prices.
De Beers rose prices by about 5% at its first sale of the year, as the industry began bouncing back, and pushed them another 10% higher in June. The increases mostly applied to diamonds bigger than one and two carats, respectively.
Alrosa’s diamond inventories fell to about 10 million carats in May, after peaking in the third quarter of 2020 at 30.6 million carats.
“The rough market is hot. There’s enthusiastic buying across all rough categories,” Anish Aggarwal, a partner at specialist diamond advisory firm Gemdax told Bloomberg in June. “There are supply shortages at the moment. That’s creating a sense of scarcity at every stage of the pipeline.”
The Moscow-based firm said it produced 8.8 million carats in the third quarter this year, adding that planned output boosts at some of its operations allowed it to increase its inventory of rough diamonds by 200,000 carats to 8.6 million.
Alrosa confirmed that demand for rough diamonds remained strong, which is reflected in their prices. The company said prices for rough stones have returned to 2018 levels, while polished diamond prices have already exceeded that year’s average.
It also said demand in the key US market remained stable, supported by ongoing recovery in other regions, including Europe. Demand growth, however, slowed down in China, in response to economic growth developments in that country.
The company is optimistic the market will continue to rebound in the coming months, especially as the upcoming Christmas season is expected to have an earlier-than-usual start in the US, as jewellers have been placing orders for polished diamonds since July.
