The Diamond Industry’s New Power Player

One of the strange things about this industry – and I am guilty of this as much as anyone – is it still very much De Beers-focused, even though the days of De Beers’ dominance are clearly over.

One entity we should be spending more time looking at is Alrosa, the state-owned Russian diamond production company.  In 2009, Alrosa will sell all its production independently, putting an end to sixty-plus years of sales to De Beers, because of a decree by the European Commission. Alrosa vice president Sergey Oulin told me in an interview in Amsterdam that, come 2009, Alrosa will market some 25% of world diamond production, including $400 million from Angola.    

Now when you consider that De Beers currently markets about 35% to 40% of world production – a number that will likely fall when Alrosa stops selling them after 2009 – it is obvious that Alrosa will be a huge force on the market.

Oulin said that Alrosa is still working out how to sell this bounty when the De Beers contract officially ends. 80% of it will be sold in Russia, he says, and the rest in satellite offices throughout the world, mostly to small and medium-sized businesses.

Alrosa will also put a “substantial sum” towards a “branding strategy,” as yet unspecified, but possibly including jewelry stores. Russia was one of the first countries to try to set up a local cutting industry – a cause now taken up by producers in Africa – but, after numerous false starts, Oulin said the domestic factories will mostly produce the “branded” product.

Oulin didn’t seem up on the latest talk that Alrosa may try to circumvent the EC ban on sales to De Beers—“all operations will work in full compliance with anti-trust legislation,” he said –  and added that Alrosa is still appealing the E.C. decision, after considering dropping their appeal earlier this year.

“We believe the decision by the Commission violates our rights,” Oulin said.  But he noted that even if Alrosa wins the appeal, the De Beers contract is not necessarily back on. “We are challenging our rights in principle, regardless of what we are going to do,” he said.

Oulin also said, “The President of Alrosa plans to develop the company up to the modern standards of internationally operating companies.”

This is an excellent point. Alrosa has always had the reputation as a mysterious, non-transparent company. Whether or not this has been deserved, images matter these days, and over the years the Russian diamond industry has had its share of scandals and strange moments. For decades, Russian officials never published their official diamond production – a policy they have since changed. In any case, all this is no longer acceptable.

Alrosa is one of the biggest and most important companies in the industry, and, the people there need to become true, transparent, responsible leaders of this trade.  As Oulin admitted, there is a lot for them to do now—yet too much at stake for them to fail.

JCK News Director