The general director of Smolensk OJSC PA “Kristall” Maxim Shkadov told about the current state of the diamond market, rigid quality standards and forthcoming surprises for the 50th anniversary of the diamond manufacturing enterprise which is the largest in the country, in the interview to the agency “Prime”. Lyubov Martynova talked to him.

Question: Maxim Aleksandrovich, tell about the position of "Kristall" at the world market, why do you have such a big export orientation?

Answer: Yes, our enterprise exports 98 % of production. The main part is realized to the companies-dealers by large wholesale quantities or through the network of own trading divisions in the leading diamond world centers – Antwerp, Hong Kong, New York, Dubai. Besides, Smolensk diamonds are bought by the leading jewellery brands in the world. "Kristall" directly sells to the legendary American company Harry Winston, through our partners are delivered to Chopard, Cartier, Tiffany. These are the most known brands and rather narrow niche. You can believe me, it is not easy to work here.

The Russian market isn't ready to consume diamonds of such quality in large volume yet. But we lay high hopes on the growth of the domestic jewellery market. I think our production gradually will be bought by more and more Russian companies.

I can tell that the diamonds on 15,2 billion dollars have been mined in the world for 2011. Diamonds for the sum of 22,6 billion dollars have been produced. The cost of the jewelry with brilliants in retail made 70,8 billion US dollars.

Question: And what share of "Kristall" is in it? Is there a rating of global diamond manufacturers, who are your nearest competitors if it is possible such to call?

Answer: Our share in the sector of premium class diamonds is about 10 %. It is difficult to tell about competitors, as the diamonds are sold by dealers who place orders for production worldwide. We differ from them in this regard, being at the same time both the producer and the dealer all in one.

Question: And what competitive advantages does "Kristall" have?

Answer: Since 2010 we have entered the Triple Excellent and Double Excellent quality standard. It is the highest level. This standard moreover has quality criteria "three zeroes" – definition of the American gemmologichesky laboratory AGS (the assessment on three parameters: cutting, symmetry, polishing, where "0" is the highest mark). Under this standard we started manufacturing a hundred percent of our production. If earlier the most high-quality diamonds left according to separate programs, now the release of such production is conducted in large quantities. Also it is a conscious measure for improvement of production quality to take a niche of the most high-quality products in the world.

Question: How many producers in the world have this standard?

Answer: The AGS standard is used actually all over the world. But we, it is necessary to say, are one of the few who is engaged in mass production according to this standard. There are companies in Thailand, in Hong Kong, but they can compare on volumes and scales with us. They make individual products, we make in thousand volume. According to this standard we are the most large-scale producers in the world. Exactly.

Question: What happens today at the world market of diamonds?

Answer: Changes at the market have begun since 2000, actually since De Beers leaving the position of the monopolist. The well-known cartel started to leave the positions slowly, giving opportunity for more market, competitive mechanism. As a result the market which was earlier controlled by one company which accurately avoided oversaturation and could go smoothly off various crises, since 2000 has begun to face problems more often. And if earlier the branch crises were predicted one time in ten years, now they start to happen almost each two years.

Since July of the current year the world market started to brake. And this slow process continues, it is connected with the general crisis phenomena. Though the price situation on brilliants is more or less stable, there aren't any jumps. But market activity was slowed down. In 2013, I think, after all, any movement will begin, but not earlier than February. Traditionally the market "lives" from February to summer. In summer months, as a rule, the stagnation period is observed.

Today's "subsidence " at the market of diamonds is explained with its product abundance. A certain role in it was brought by India which authorities strongly stimulated diamond manufactiruring branch, invested large funds in it. They brought chaos to the market of diamonds, and, as a result, the offer exceeded the demand.

Question: How the markets of diamonds and brilliants correspond?

Answer: Today the rough diamonds are sometimes more expensive than end products - diamonds. Certainly, such situation doesn't suit us and it, in principle, shouldn't take place. Nowadays the market of diamonds and the market of diamonds have nothing in common. And the current speculative increase in demand for rough diamonds, generally, is on Indian colleagues head.

Question: And how can you prevent it if such is possible in general?

Answer: It is difficult to prevent it as the sellers of raw materials need money "right here and right now" and nobody thinks of decrease prospects. Pay attention to the reports of the diamond-mining companies, all of them write the same, - "demand for diamonds is good because demand for jewels grows". And that there is no connection between these two demands – they keep silent about it. Actually it is necessary to write in that way: "The credits to diamond dealers in India grow so the demand will grow, as soon as the credits will run low - the market will face the crisis".

Question: What price trend will you predict on prospect?

Answer: I don't expect fundamental price change. Diamonds within the last 40-50 years slowly but surely grow in the price. At this market there are no speculative things, as with diamonds, as with any raw materials. The exploitation on assured diamonds resources of which diamonds are made, will be conducted about 40 years more. If any new fields are not opened soon, it is possible to predict that value of the natural diamond will only raise.

Certainly, people learned to grow artificial diamonds in the world. But the high-priced product as, however, any other one, is bought on emotions. And synthetics is very difficult for connecting with emotions.

Question: What financial indicators of "Kristall" will you expect following the results of 2012?

Answer: Now it is difficult to speak on parameters. We expect revenue from 12 to 14 billion rubles (in 2011 it made 16,732 billion rubles – editor's note). The market actively changes these four months. Only in December we can say concrete figures.

I will emphasize that the volume of our realization is defined by the demand at the world market. Now the demand is slowed down rather actively.

Question: How does the State Depository for Precious Metals of Russia influence the current situation?

Answer: The State Depository for Precious Metals as a regulator of the Ministry of Finance, in the last some years render a certain help to local producers in the form of purchases of diamonds and partially diamonds for their purposes – replenishments of the state fund. It occurs in certain intervals of market decline. When the market is on the up grade, the State Depository for Precious Metals rather successfully realizes the purchases, therefore the state on these operations only earns. This year the State Depository for Precious Metals also has a buying plan. As far as I know, until the end of the year they will be realized. But while there is no decision, and I won't operate with hearings. But it is obvious that the market is in a stagnant state, and, I think, influence of the State Depository for Precious Metals on this situation would be useful for everybody: for both diamond producers and diamond producers.

Question: Will dividends for the current year be planned?

Answer: Certainly, we plan dividends for 2012. I think that we realize these plans. The percent of allowance on dividends always is stable - 25 percent of the net profit. As the state enterprise, we have norms which are fulfilled every year.

Question: Are there plans on enterprise privatization?

Answer: No. As far as I know, we don’t plan privatization in the near future.

Question: Can one more additional share issue of "Kristall" take place?

Answer: We carried out increase in authorized capital at 4 billion rubles in 2010. It is known that the state through the State Depository for Precious Metals paid for additional issue with diamonds and diamonds. Thanks to it, we could increase volume of production more than in two times; in 2011 we were ahead of schedule on 15-20 percent in all key economic indicators.

New additional issue is not planned yet. But in the future, of course, we would like to make it again.

Question: How do you estimate the entrance of Russia to the World Trade Organization and how can it influence on "Kristall "?

Answer: If as a result of WTO membership there will be no obstacles and sale of goods will be easier, everything will become easier. Because from the point of view of any protecting measures, nothing, in principle, does not limit us. Long ago "Kristall" was integrated into the international market. I cannot say that something prevents us to develop in the present situation because there is already a normal, civilized turnover of diamonds and diamonds. In the conditions of WTO it will be easy to work for us and it won't have an impact on financial indicators of the enterprise.

Question: How will the order of the president of the Russian Federation for the strategic enterprises, obliging to coordinate the requirement of the foreign states with our government affect the "Kristall" activity?

Answer: I think, the order does not so affect us. "Kristall" doesn’t have any disputable and difficult situations with foreign consumers.

Question: Where do we buy raw diamonds and on what conditions?

Answer: We have direct suppliers - ALROSA, De Beers and the State Depository for Precious Metals. We buy about 70 % of raw materials from ALROSA. All raw materials are taken on the terms of advance payment.

Question: Are you satisfied with conditions of raw material purchase?

Answer: The buyer should never be satisfied. If he is satisfied, then the prices constantly rise. And today the price of diamonds overtakes the price of brilliants. Naturally, we are never satisfied with it.

Question: Is it possible to allocate zones of different consumer preferences on diamonds at the world market?

Answer: There is a certain demand always on rather unique stones that are of rare colors, rare forms and sizes. On them there is a constantly stable demand. Jewelers in different countries always have their traditional approach. For example, in the south-east people prefer more yellow goods, large stones are especially appreciated in America. The Japanese appreciate the most white and pure stones. Small and middle dimensional and weight groups of diamonds are traditionally in demand in Russia.

About 80 % of diamonds of a round form of cutting are made in the world and at our enterprise, in particular. They are the most expensive because during their manufacturing a lot of initial raw material remains as dust, the exit of the suitable makes about 42-43 % from weight of the initial crystal. Fantasy forms are, as a rule, cheaper, but, depending on demand, can be realized quicker.

Question: What buyers is it more interesting to work with?

Answer: With everybody who pays money!

Question: You said that the enterprise would prepare a surprise for its 50th anniversary?

Answer: We will prepare the special jewellery collection devoted to the forthcoming anniversary, but there is more than this. The special project which, I think, will surprise the jewellery public, including the foreign one, is almost ready.

INFORMATION

Smolensk OJSC PA Kristall is the largest producer of diamonds in Russia, 100 % of shares belong to the Russian Federation represented by the Federal Agency for State Property Management. It is on the list of the strategic enterprises.