Diamond production is one of the oldest branches of the mining industry in Russia, which started with the discovery of diamonds in gold mines in the Urals in 1867. However, the diamond fields there yielded insignificant amounts of diamonds and before the 1950s the country was forced to buy rough diamonds abroad using them for industrial purposes. The discovery of primary diamond deposits in Yakutia gave life to a diamond industry, which not only met Russia’s need in industrial diamonds, but also started to export gem-quality diamonds to other countries.
Currently, the Russian Federation, despite a slight decrease in rough production in 2012 versus 2006, turned to be the world’s diamond production leader both by volume and value (Table 1).
Table 1
Diamond output and diamond export in Russia in 2003-2014
According to the data provided by the Kimberley Process and the Finance Ministry of the Russian Federation
However, it should be taken into consideration that diamond production, having reached its peak by volume in 2004-07, later continued to go down until 2012, which was due to the instability in diamond prices caused by the global downturn. After a slump in the value of mined diamonds, which happened in 2009 during the crisis in the global diamond industry, demand for rough began to increase, which naturally led to an increase in production and prices. Judging by its performance, 2014 proved to be a record year for the Russian diamond industry.
The diamond industry in Russia
ALROSA Group accounts for the major part of diamond production in Russia and includes such companies as ALROSA, ALROSA-Nyurba, Almazy Anabara, Nizhne-Lenskoye, which are mining diamonds in Yakutia, as well as Severalmaz operating in the Arkhangelsk Region. Besides ALROSA Group, diamonds are mined by LUKOIL in Arkhangelsk and Uralalmaz in the Perm Region. These companies produce insignificant amounts of diamonds compared with ALROSA Group, which is still delivering about 97% of Russian diamonds (Fig. 1).
Fig. 1. The structure of the ALROSA Diamond Mining Group.
Diamond manufacturing in Russia
The diamond manufacturing industry in the Republic of Sakha (Yakutia) started to take shape in 1991, when the Council of Ministers of the Yakut Saha Soviet Socialist Republic issued Decree № 68 dated 08.02.1991 prompting the decision to establish the Tuymaada Diamond Company. In a short time, from 1992 to 1995, the company built 16 diamond cutting factories located throughout the republic. Until 2004, the diamond manufacturing industry in Yakutia was strenuously building up polished output in carats being supported by the state in terms of tax exemptions and local rough supply provided on a tolling basis.
However, Yakutia’s diamond cutting industry was not spared by the fundamental changes in the global diamond business taking place at the turn of the millennium. In 2002-2005, rough went up in price by 39%, while polished goods by only 5-10%. In addition to objective reasons, there were subjective reasons as well: many companies within the industry, enjoying “hothouse” conditions up to a certain time, were not prepared for higher competition and a radical change in the situation on the market. Hence, many diamond manufacturers, including Tuymaada Diamond, went bankrupt. In 2014, Yakutia had 9 diamond cutting factories, which produced $164 million worth of diamonds, while their sales reached $214 million. (Fig. 2).
Fig. 2. Diamond manufacturing companies of Yakutia in 2014.
ALROSA has its own diamond-cutting facilities in Moscow, Orel and Barnaul. However, the company abandoned the idea of vertical integration, which some time ago was the backbone of its strategy, and focused on diamond mining. In 2014, ALROSA’s polished sales reached $144.4 million.
Ruiz Diamonds is a stand-alone diamond manufacturer and also a jewelry company belonging to Lev Leviev’s Group. It is a vertically integrated business, which processes the entire amount of diamonds mined by Uralalmaz. The company’s goods are mainly sold outside Russia.
Prospects for the development of diamond business in Russia
The current stage of the diamond business in Russia is characterized by the following factors:
1. Despite the downturn, Russia is expected to maintain its diamond production at 36-39 million carats, accounting for almost one third of the world's diamond output.
2. The diamond manufacturing industry in the country is in a systemic crisis due to low profitability stemming from high prices for rough, the lack of working capital and high lending rates at commercial banks.
3. To increase the competitiveness of the diamond industry in Russia it will need to be developed according to a cluster pattern. At present, there are three diamond clusters, virtually taking their final shape: the Central Cluster, Northwest Cluster and Yakut Cluster. Each of them differs from the others and includes various segments of diamond business (Fig. 3).
Fig. 3. Diamond clusters in the Russian Federation
Yuri Danilov, Ph. D., CEO of Expert, an information and analysis center at Ammosov North-Eastern Federal University
