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By John Helmer in Moscow

Alrosa has signed a series of three contracts worth a total of $490 million at current diamond values with three Indian cutters, traditionally Alrosa’s largest clients in India. But industry sources in Moscow say they are concerned to find out whether the announcement presages a much larger flow of Russian midsize rough to India, with less available to Russian cutters.

The Indian media first released the news of the new contracts last week, as Prime Minister Vladimir Putin began his state visit to New Delhi. An official announcement from Alrosa disclosed that “three-year supply agreements [were signed] with the Indian diamond manufacturers Rosy Blue, Diamond India Ltd. and Ratilal Becharlal & Sons for the amount of about USD 490 m, in terms of the current market prices. The contracts provide that the range and prices of the rough goods to be supplied will be agreed upon by the parties on a quarterly basis, based on the current situation in the global diamond market, with a possibility of additional supply.”

Andrei Polyakov, Alrosa’s spokesman, told Polished Prices.com that $490 million is the aggregate of all three contracts for rough supplies over three years. He said the agreements have not been denominated in carats, nor is there express provision for “a specific set of diamonds. The prices are to be adjusted every three months. We cannot disclose the pricing per carat. The prices are to be adjusted in terms of the market situation.” Polyakov also emphasized that sale and purchase contracts have been signed, not memoranda of understanding, “with all the prices stated.”

An Indian press report claims that the contracts are “the first of their kind in terms of size of the contracts between a few Indian companies directly with a miner, said an official from Gems & Jewellery Export Promotion Council, India’s apex gem & jewellery industry body. ‘The deal is unique in that as it is a direct source of supply for local diamond companies, which till recently imported roughs mined elsewhere from centres such as Belgium and Israel, thereby adding to their costs,’ said Vasant Mehta, chairman, GJEPC. ‘This agreement will lead to cost savings of at least 3-4% for the companies, as it is a direct deal with the miner, bypassing the other centres.’”

In 2009, according to Alrosa’s brief statement, there were sales to the Indian diamond manufacturers totalling “over USD 500 m, which [was at the time] equivalent to half of the company’s export sales [for 2009].” These were reportedly purchases out of the spot market, and not by direct contract between Alrosa and individual Indian buyers.

Indian industry sources have told PolishedPrices.com that about half of the new deal volume, or about $250 million worth, has been contracted by Diamond India Limited (DIL). All stones to be supplied will be under 3 carats in size. A Russian diamantaire said he sees little that is new in the announcement, the sales volume and the value, or the buyers. “Rosy Blue and Diamond India Limited are traditionally the largest clients of Alrosa in India, and this will be no big news if DIL is buying one-half of all the production going to India.” Asked if the transaction had been under pressure for announcement in time for Putin’s visit, the source said: “Alrosa’s contract added up in the decisions made at the highest level about atomic energy and weapons, which makes it look like a political move rather than some especially practical economic decision. India traditionally purchases small-carat diamonds; it’s the specific of the Indian market, so this will not be a surprise if the Alrosa contract involves diamonds of less than 3 carats.”

Ararat Evoyan, head of the Russian Association of Diamond Manufacturers, said “it’s impossible that the government forced Alrosa to sign the contract with India, because Alrosa has been planning this contract for quite a long time, and their representatives visited India in February. This is Alrosa’s own policy. It is possible that Diamond India will buy one-half, but Alrosa, like any other company, is interested in a broad variety of buyers, not just one or two companies.”

Speaking for the Russian cutting industry, Evoyan added that he is concerned about the announced transaction “because that may mean more diamonds for export, and fewer for the home market.”

Rosy Blue has long been after a long-term volume and price contract with Alrosa. But its executives have so far declined to comment on the terms of the announced contract, and whether Rosy Blue will continue to buy Alrosa rough on the Antwerp market, outside the contract.

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