Is De Beers No. 2?

It raised eyebrows when a statement from Anglo-American said De Beers’ diamond production dropped a whopping 90 per-cent in the first quarter of 2009. A New York Times article about Russian diamond producer Alrosa then rubbed salt in the wound by writing, “Russia quietly passed a milestone this year: surpassing De Beers as the world’s largest diamond producer.”

De Beers has not taken too well to any suggestion it’s no longer king of the diamond hill. The company does note it plans to reduce production by about 40 percent in 2009. But spokeswoman Lynette Gould notes, “De Beers is, without doubt, the world’s leading diamond mining and marketing company. Given that production levels in the first quarter were an anomaly, and seven months remain in 2009, we believe it’s premature to have made [the New York Times] statement.” In other words, Russia may have passed us temporarily, but we’ll pass them soon enough.

De Beers, however, has certain limitations that Russia doesn’t. Because its antitrust agreements with the European Union prohibit stockpiling, it has reacted to the current downturn by halting production at its mines—which arguably has the same effect as stockpiling.

Russia, which controls an estimated 25 percent of the market, has no such limitations. It has continued its diamond production, stashing the diamonds for a later date, as De Beers once did. (An Alrosa spokesperson told the Times: “If you don’t support the price, a diamond becomes a mere piece of carbon.”)

De Beers also is exploring new ways to sell its goods, especially since it recently received two interest-free loans, totaling $800 million, from its corporate parents to meet its debt obligations. It also has instituted “second-week sights,” which give sightholders a crack at goods that didn’t sell the first week. It’s talking with investors and investment funds about buying diamonds for their long-term value. And it has instituted volume discounts for sightholders, which some call de facto price decreases.

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