will russia continue to dominate the global diamond market?
TRANSCRIPT
Will Russia Continue to Dominate the Global Will Russia Continue to Dominate the Global Diamond Market?Diamond Market?
Monika Nowotnik, Research Analyst
Metals, Minerals and Mining
8 February 20128 February 2012
© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
Today’s Presenter: Monika Nowotnik
Functional Expertise
• 7 months of expertise in the division for Economic Research and Analytics, and over 1 year in the division for Metals, Minerals and Mining for Russia, CIS and CEE
• Particular expertise in:
- Analyzing macroeconomic trends, PESTLE analysis and global forecasting
- SWOT analysis, drivers and restraints analysis, competitiveness analysis, risk analysis
- Industry specified analysis and forecasts
Industry Expertise
� Experience base covering broad range of sectors, leveraging long-standing working relationships with leading industry participants’ Senior Executives in:
- ICT, Energy, Healthcare, Defense and Chemicals in Russia
- More specific knowledge about Metals, Minerals and Mining industries in Russia
What I bring to the TeamWhat I bring to the Team
• Extensive economic knowledge
• Wide knowledge about the CEE region (especially Russia and Poland)
• High analytical skills
• Ability to manage the project (June 2010 - Certificate Prince 2)
Career Highlights
• 3 years of business experience in:
- Asseco Poland S.A. (Warsaw, Poland) Division for Cooperation with International Organizations and Solutions for Uniformed Services – Sales Support
- NATO HQ (Mons, Belgium) – Engineering Branch and Canadian Support - Intern
- ABG Ster Projekt S.A. (Warsaw, Poland) Center for Design of IT Solutions - Intern
Education
• Postgraduate Studies in Project Management, WWSI, Poland
• MA from Warsaw School of Economics, Poland
• Exchange (during MA) on University of Tartu, Estonia
Monika NowotnikResearch Analyst
Frost & SullivanCentral and Eastern EuropeWarsaw, Poland
Focus Points - Agenda
22
33
11
Russian Diamond Market OverviewRussian Diamond Market Overview
Key Drivers and RestraintsKey Drivers and Restraints
IntroductionIntroduction
44
55
66
77
Forecasts and TrendsForecasts and Trends
Competitive LandscapeCompetitive Landscape
End-Users AnalysisEnd-Users Analysis
ConclusionsConclusions
Briefly Discuss Occasion for the Analyst Briefing
� In 2010, Russia has become the world’s largest diamond miner. Will it be able to remain the market leader?
� Mining of rough diamonds is well-developed in Russia due to government support. How it is affecting the other market participants? What about the IPO of Russian largest diamond miner - Alrosa?
� Cut diamonds segment is underdeveloped due to the policy of state-owned companies, low price competitiveness, and shortages of skilled labor force. How to survive in these challenging market conditions?
Introduction
Definitionns and Scope
Mining Segment -Rough Diamonds
Mining
Cutting and
Sorting
Retail
Cutting and Polishing
Manufacture of Jewelryor Industrial Use
Source: Frost & Sullivan analysis.
Cutting Segment -Brilliants
End-Use
Key Facts About Global Diamond Market
Among the world’s rarest minerals
They cannot be standarised
Symbol of love, fidelity, and purity
They cannot be standarised
Gem quality diamonds are used in jewelry
Industrial diamonds are used as abrasives
DIAMONDS
Global Hot Spots
In 2010, Russia was the largest diamonds manufacturer in the world. The country is expected to increase its production
As of 2010, the second largest world’s diamond manufacturer was Canada. Similar to Russia, it possesses
12
Netherlands, Antwerp China
Diamond Market: Key Manufacturers and Processing Centers (Global), 2010
Source: Frost & Sullivan
analysis
production and to hold the leading position in the diamond market.
possesses rich kimberlite reserves.
The third world’s largest diamond producer in 2010 was Botswana. The country has limited resources, but conducts intense mining activities because of inexpensive labor force resources.
3
Israel, Tel Aviv
Johannesburg, South Africa
The United States, New York
Legend:
Diamond Miners
Processing Centers - Cutting and Polishing
Key Diamonds Manufacturers - Mining and Sorting
India, Mumbai
Thailand
Russian Diamond Market Overview
Today and Tomorrow…
RUSSIAN DIAMOND MARKET
Export-driven market
Underdeveloped cutting segment
Alrosa - global leader
Rich resources
Export-driven market
Source: Frost & Sullivan analysis.
Demand for brilliants is increasing, cutting segment is likely to gain importance
Fierce competition between the three world’s major diamond miners: Alrosa, De Beers, and Rio Tinto.
Steady depletion of resources, searching for resources all around the world
Domestic market is growing, but export will remain important
PESTLE Analysis
• Diamonds in Russia are believed to be a
state wealth. Hence, the government
strictly controls the market through a
state-owned monopoly in the mining
segment.
• Economic growth has the strongest
impact on every industry, an increase in
revenues and salaries means higher
• Mining activities endanger the
environment. Hence, in order to protect
the environment, these activities should
be carefully planned, including the long-
lasting rehabilitation process.
• The backbone of the regulatory
framework is federal law on
Precious Metals and Precious
Diamond Market: PESTLE Analysis (Russia), 2010
Rating indicates level of impact of PESTLE factors on growth.Scale = 0 to 10, where 0 is low impact and 10 is high impact.
revenues and salaries means higher
spending, propelling the economy. As a
result of the increasing wealth of society,
demand on luxurious goods, including
diamond jewelry is growing.
• The society in Russia is characterised by
emerging middle class and increasing
urbanisation. These trends are enhancing the
growing spending on luxurious goods.
Stones (41-FZ, 26th March 1998)
and law on Natural Resources
(2395-1, 21st February 1992).
• It needs to be modernised to
ensure efficient quality control and
trade relations.
• The mining sector is under
transformation due to modern
technologies enabling efficient
underground and low-ore mining.
Source: Frost & Sullivan analysis.
Key Drivers and Restraints
Major Drivers and RestraintsM
ark
et
Dri
ve
rs
1-2 years 3-4 years 5 years
Increasing demand for diamonds drives the market revenues
Governmental support helps during the
times of economic instability
Development of mining technologies enables to increase productivity
Diamond Market: Key Market Drivers and Restraints (Russia), 2011-2015
Ma
rke
t R
es
tra
ints
times of economic instability
Lack of high-grade discoveries limits the market supply
Environmental and safety concerns slow the pace of development
Synthetic diamonds might to some extent become the substitutes of natural diamonds
Impact: High Medium Low
Source: Frost & Sullivan analysis.
Forecasts and Trends
Diamond Market Forecast
The total market embracing sales of rough, as well as cut diamonds is forecast at 3.7 percent growth annually to reach $5.74 billion in 2015.
(6.0)(4.0)(2.0)0.0 2.0 4.0 6.0 8.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
GD
P G
row
th(%
)
Diamond Market: Real GDP Growth and Inflation(Russia), 2008-2011 and 2015
Infl
ati
on
Gro
wth
(%
)
RUSSIA
Note: All figures are rounded. The base year is 2010. Source: IMF and Frost & Sullivan analysis.
(10.0)(8.0)(6.0)(4.0)
0.0
2.0
4.0
2008 2009 2010 2011 2015
Average Inflation (%) 14.1 11.7 6.8 8.9 6.5
Real GDP (%) 5.6 (7.9) 4.0 4.3 4.0
Re
alG
DP
Infl
ati
on
Gro
wth
(%
)
Growth by Market Segment
Cutting segment is expected to grow at 4.4 percent annually. It is able to generate higher margins and bring higher revenues. It presents potential due to developing jewelry industry in Russia.
Mining one is already well-developed, however still it presents potential for growth due to the rich kimberlite deposits. It is expected to witness CAGR of 3.4 percent between 2010 and 2015.
6.00
7.00
Diamond Market: Total Market Revenues (Russia), 2007-2015
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2007 2008 2009 2010 2011 2012 2013 2014 2015
Mining Segment Revenues 2.99 2.99 2.19 3.33 3.43 3.53 3.64 3.78 3.93
Cutting Segment Revenues 1.37 1.40 1.00 1.46 1.54 1.62 1.67 1.74 1.81
Re
ve
nu
es
($ B
illi
on
)
68%
Note: All figures are rounded. The base year is 2010. Source: Frost & Sullivan analysis.
70%
30%32%
Competitive Landscape
Monopoly or Real Competition
Diamond Market: Market Share Analysis by
Volume for Mining Segment (Russia), 2010
Diamond Market: Market Share Analysis by
Volume for Cutting Segment (Russia), 2010
• Alrosa controls all the richest kimberlitedeposits in Russia.
• Alrosa was considering cooperation with foreign companies and plans IPO.
• The other local companies are extracting diamonds from alluvial deposits.
• Kristall Production Corporation (Kristall) is the largest cutting and polishing centre in Russia,
founded in 1963 in Smolensk, and belonging to the state.
• Ruis Diamonds is vertically integrated with diamond miner CJSC Uralalmaz.
CUTTING SEGMENT MINING SEGMENT
CJSC Alrosa
96.8%
OJSC Nizhne
Lenskoye
3.0%
CJSC
Uralalmaz
0.2%
Volume for Mining Segment (Russia), 2010
Kristall
Production
Corporation
27.6%
Ruis
Diamonds
Ltd.
20.5%
Brillianty
Alrosa
8.6%
Others
43.3%
Volume for Cutting Segment (Russia), 2010
State MonopolyMedium Competitive Market
The Richest Diamonds Deposits
Diamond Market: Key Mining Areas (Russia), 2010
7 64,5
Arkhangelsk Oblast -
17.0 percent*
Sakha Republic (Yakutia) -
82.0 percent*
1
2
3
109
8
ALROSA
Diamond Mines -
Alrosa
Diamond Mines -
Nizhne Lenskoye
Diamond Mines -
Uralalmaz
*Percentage out of the totalproved Russian reserves.
Source: Frost & Sullivan
Alrosa operates on four largekimberlite mines:
1. Mirny
2. Udachny
3. Aikhalsky
4. Nyubrinsky
Alrosa’s subsidiaries owns 15 smaller mines:
5. Alrosa Nyurba - alluvial depositsNyubrinsky, Butoobinsky
6. Almazy Anabara – six smallerdeposits in Anabar area
7. Severalmaz - Lomonosov Mine
Nizhne Lenskoye operates on five
alluvial deposits:
8. Byllyakh, Tyglykyt and Hara-Mas
9. Molodo
10. Talahtah
Uralalmaz belonging to the Ruis
Group operates on a few alluvial
deposits in the Urals region, in
Krasnovishersky District.
Krasnovishersky District - 2.0 percent*
URALALMAZ NIZHNE LENSKOYE
End-User Analysis
Diamonds are the Girl’s Best Friends
• The Russian jewelery
industry has grown by 20.0
percent in 2010 to reach $5.30
JewelryMachinery
• The market of diamonds
instruments is growing due
to their increasing
popularity and
unquestionable durability
The machinery industry is creating the largest demand for diamonds in volume terms. However, in value terms, it accounted for only 1.0 percent of revenues in 2010 due to a gap in prices between
gem stones and industrial diamonds.
Note: Other Industries include felectronics, medicine and chemistry.
Note: All figures are rounded; the base year is 2010. Source: Frost & Sullivan analysis.
5.8 million carats
percent in 2010 to reach $5.30
billion.
• The largest Russian
jewellery manufactureres are
Adamas, Almaz Holding,
Yashma, and MIUZ (Ruis
Group).
unquestionable durability
and precision.
• It is represented by four key
participants: OJSC
Terekalmaz (Terekalmaz),
JSC Daimnitech, OJSC
VeAl, and JSC Tomal.
Conclusions
The Last Word
22Retailers are optimistic about diamonds sale in the future as a result of the
increasing popularity of diamonds as a capital investment.
Higher growth is expected in the cutting segment as opposed to mining. Russia’s
11 Russia possesses rich kimberlite deposits, which still need geological exploration.
33Higher growth is expected in the cutting segment as opposed to mining. Russia’s
two largest cutting companies (Kristall and Ruis Diamonds) are well positioned to
push exports.
44The mining segment is likely to become slightly more competitive, however the
supply is not likely to grow as the largest miners want to keep prices high.
55Modern equipment and automated systems are likely to facilitate growth in the
market due to increasing efficiency and productivity.
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For Additional Information
Anna Zanchi
Corporate Communications
Industrial Automation & Process Control
+39 02 4651 4819 [email protected]
Monika Nowotnik
Research Analyst
Metals, Minerals and Mining
(48) 22 481 62 52
Archana Chauhan
Research Manager
CEE, Russia and CIS
(48) 22 481 62 81
Muthukumar Viswanathan
Practice Director
Industrial Automation & Process Control - Europe
+44 20 7915 7804