Russian diamond producer forges through sales downturn

The global economic crisis has seen diamond sales slump dramatically. But Russian producer, Alrosa, has fended off the downturn with sales to the state repository.

Diamonds may be the hardest mineral in the world, but the industry did not come through the economic crisis unscathed. As global demand slumped, state-owned Russian diamond monopoly Alrosa slashed output and sold its stock to the State Precious Metals and Gem repository, Gokhran.

That put thousands of Russian diamond manufacturers at risk as domestic rough diamond prices soared – while laws and taxes stifle the international business. Alex Popov, President of the Moscow Diamond Bourse says that sales into the state repository were the best available option for Alrosa.

"Diamonds are still considered state property for customs, for tax inspection, for bureaucracy dealing… The official custom price for diamonds that can be exported is higher than the market price today in the world. This is the reason they sell to Gokhran, because nobody else is buying them."

While it hurt stone polishers, traders and jewelers, the government’s measures saved Alrosa. Some analysts say the state monopoly is well positioned for future profits, even if smaller companies have been left destroyed in its wake.

While other companies stripped staff to the bone, Alrosa’s mines continued to run.

Like many state firms, Alrosa was more than a company – operating the Yakutia railway and running social infrastructure. The government passed responsibility to regional municipalities, freeing more cash for the company, according to Dmitry Abzalov, Chief Expert at the Moscow Centre for Political Trends.

"If you compare with other companies, the pressure on Alrosa wasn't so drastic. The company stayed among leaders. I think the crisis may even prove to have given Alrosa a competitive advantage. It can increase its market share in Europe and strengthen its position on the American market."

The coming months will see whether Alrosa can thrive where other Russian diamond companies struggled. But analysts say the company must reach profitability alone. Whilst it relies heavily on government support, it risks falling behind more nimble private sector competitors like De Beers.