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6 Feb, 2009 16:55

Alrosa to continue producing sparkle despite diamond glut

Russian diamond monopoly Alrosa has no plans to cut production despite the economic crisis. To survive low diamond prices and shrinking demand the company will sell half of its output to the State Depository this year.

Diamond producers say they sell emotions. But it seems that, in times of crisis, people already have enough emotions in real life, but not enough cash, and demand for gems is falling dramatically.

Sergey Vibornov, Head of Alrosa, Russia’s state-owned diamond monopoly, says the current glut and speculation have sent prices into free fall.

“We have huge stocks accumulated, and bad banking behaviour. Any attempt now, to sell, is creating huge discounts.”

The worlds four largest diamond producers – De beers, Rio Tinto, BHP Billion and Alrosa – are to jointly finance a global marketing company. The aim is to promote the investment value of large diamonds – more than 3 carats. Despite the faltering market, Vibornov says Alrosa has no plans to cut production.

“We are not cutting production, we are not cutting construction. We don’t have any choice because actually we are in a very active phase of building our underground mines, and we can’t stop it.”

To cover the companys losses the State will spend $260 million on purchasing half of Alrosa’s output this year according to Sergey Goryainov, an expert from the rough and Polished Agency.

“This will provide Alrosa the money to finish capital-intensive projects like underground mines and avoid lay-offs. In the future, this stock will give Alrosa a strong influence on prices.”

Experts forecast that when the economy recovers, Alrosas stock could enable it to boost market share by 10%, giving it around a third of the world’s diamond market.