Commodity Online
SURAT/MOSCOW: Diamond polishing units in Surat should now look to Russia for the movements of prices instead of watching De Beers.

Till now De Beers has been the market ruler as far as diamonds are concerned. That monopoly has been broken by Russia by stockpiling huge quantity of diamonds in its state-owned company.

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According to a report appeared in New York Times this week, Russia has surpassed De Beers as the world’s largest diamond producer.

The reason for this is recession. Following the slump, state-owned Alrosa diamond company of Russia has been keeping all its diamonds in its vaults, not selling a single piece.

This is a tactics used by China also as far as metals are concerned. China had adopted a secret policy to stockpile metals like copper and gold during recession and increase its stocks. In that way China has been using the prices crash to its benefit.

Russia has also adopted that method now as far as diamonds are concerned. Till now De Beers has been ruling the roost in diamond markets.

But, now onwards Russia will decide the price movements of the sparklers as it has the biggest collection in the world.

Global market for diamonds is so dismal that Alrosa diamond company, 90 per cent owned by the Russian government, has not sold a rough stone on the open market since December.

According to an NYT report, each day, thousands of diamonds are washed and sorted by size, clarity, shape and quality by this company. It could be years before more people admire these stones.

Now, Russia has become the arbiter of global diamond prices. Its decisions on production and sales will determine the value of diamonds on rings and in jewellery stores for years to come, in one of the most surprising consequences of this recession.
Largely because of the jewellery bear market, De Beers’s fortunes have sunk. Short of cash, the company had to raise $800 million from stockholders in just the last six months.

The recession also coincided with a settlement with European Union antitrust authorities that ended a longtime De Beers policy of stockpiling diamonds, in cooperation with Alrosa, to keep prices up.

NYT says, though it is a major commodity producer, Russia has traditionally not embraced policies that artificially keep prices up. In oil, for example, Russia benefits from the oil cartel’s cuts in production, but does not participate in them.

In an attempt to carefully calibrate its re-entry on the global market, without forcing prices still lower, Russia is relying on two things: the Soviet-era precious gem depository — created to hold jewelry confiscated from the aristocracy after the 1917 revolution — and capitalist investors, whom Alrosa hopes will buy diamonds as an investment, like gold.

Until last year, De Beers produced about 40 per cent of the global rough stone supply, and Alrosa 25 per cent. But De Beers, which is prohibited under its European Union antitrust agreement from stockpiling, closed mines in response to the glut in rough stones. Russia is loath to do that, as authorities in Moscow, gravely concerned about potential unrest by disgruntled unemployed workers, try to keep workers on the payroll.

In the first quarter, De Beers reduced output by 91 per cent compared with the previous year. The diversified mining companies Rio Tinto and BHP Billiton also curbed production.

Meanwhile, the market for wholesale polished diamonds, worth about $21.5 billion, is expected to fall to about $12 billion in 2009.
(Source: New York Times)