Russian diamond producer Alrosa is extending its rough diamond supply contracts through the second quarter of 2021 to have a clearer picture of goods that clients want to purchase based on actual market demand.
The miner said it is giving long-term clients – consisting of major diamond cutters, dealers and vertically integrated businesses – more time to update their “purchase history,” given pandemic-related developments.
Alrosa last year implemented a flexible sales strategy, allowing customers to defer contracted volumes of rough diamonds to subsequent trading sessions.
Under normal circumstances, assessment of clients’ past trading activities would occur at the end of the year but this was moved to Q1 this year, and now, to Q2.
According to the diamantaire, the unprecedented health and economic crisis resulted in companies adopting new business models to face emerging challenges. Alrosa categorised clients’ purchase history into three parts: Pre-pandemic, selective purchases during the initial lockdown, and updated demand after businesses resumed.
“In this context, the traditional practice of allocating goods for the contract period based on the previous period’s purchase statistics may lead to distortions,” said Evgeny Agureev, deputy CEO of Alrosa. “This is why we are extending our existing long-term contracts and formalising our recent practice of working upon client requests without mandatory allocation of goods. This will allow us to support real confirmed demand and maintain an equilibrium in the industry.”
The company said it held a round of negotiations with long-term clients in Q1 2021 to help identify their needs.
“The feedback indicates that the current demand structure may significantly differ from the purchase history during the contract period – the latter usually considered as basis for allocation of goods,” Alrosa noted. “This decision allows for increasing the purchase history relevance and using it to draft an offer that would fully meet the clients’ actual requirements.”
Alrosa’s sales policy is based on three-year contracts with major clients. Diamond sales from long-term deals account for about 70 per cent of the company’s total revenues.