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Continued recovery of Alrosa's sales bodes well for diamond markets in 2020

Russian diamond monopoly PJSC Alrosa registered a fourth consecutive month of growth in sales of rough diamonds in November, which reached US$282.1 million after a nadir of US$164.6 million in July.

The majority state-owned miner's sales of rough stones rose 11% from US$253.9 million in October and 5.9% from US$266.6 million in November 2018.

Sales of polished diamonds amounted to US$5.8 million, bringing the total sales for November to US$287.8 million, according to a Dec. 10 news release. Deputy CEO Evgeny Agureev cited the improved sales figures as evidence that the midstream sector, specifically in India, is "on track to restore its balance."

The rise in revenue on both a monthly and yearly basis could be a sign of diamond market recovery, according to a same-day note from BCS Global Markets analysts. They expect the market to "restore" in 2020.

VTB Capital Research analysts noted that November was the first month of 2019 with sales in line with historical averages; sales for the first 10 months of 2019 were 29% below the historical average for that period.

The analysts estimated that global midstream rough diamond purchases fell almost US$5.5 billion in 2018 to 2019, considerably more than the US$3.8 billion reduction in bank financing, anticipating that the midstream sector would restock in 2020, boosting rough diamond purchases 5%.

An about 3% cut to rival diamond producer De Beers SA's output guidance for 2020 and 2021 also bodes well for the market balance, following the 11% reduction of Alrosa's forecast in November to an expected 34.3 million carats in 2020, VTB's analysts added.

They believe that the Russian diamond miner's period of underperfomance is over and expect revenue to grow by 21% in 2020 as sales recover and the average price mix returns to normal levels, the analysts wrote in a Dec. 9 note. They lowered their 12-month target price for Alrosa to 90 Russian rubles while reiterating their "Buy" rating after cutting EBITDA forecasts for the company during 2020 to 2022 by 17% to 21% due to lower output and diamond index prices.

As of Dec. 9, US$1 was equivalent to 63.67 Russian rubles.