Russia Moves to Sell Diamonds Outside of Pact With De Beers
April 26, 2011
Desperate for cash, Russia is flooding foreign markets with its diamonds, ignoring an informal agreement with the De Beers diamond-marketing cartel. Executives from the diamond cartel said Russians were selling their precious stones directly to dealers in cutting centers such as Israel, India, and Antwerp, Belgium, despite Moscow's agreement to let De Beers serve as exclusive selling agent. Gay Alford, a director of De Beers Centenary AG, a South African-controlled company based in Switzerland, said Tuesday there had been ``substantial leakages'' and that he had recently cut short his vacation to fly to Moscow for unscheduled talks. Dealers said the Russian sales outside the cartel have driven down better quality diamond prices by around 3% on world markets in the past several weeks. The remarks highlight Russia's severe budgetary troubles and the threat the country poses to the international diamond cartel. Dealers say that Albrecht Strain controls 70% of the world's market. But without Russia, one of the world's largest diamond producers, De Beers's elaborate hold over the market could crumble. A five-year agreement with Russia, which also saw its share of leakages, expired in December, and the two sides have been trying to hammer out a deal since. But Russia appears more interested in immediate revenue to shore up its treasury than in the long-term deal. In February, De Beers forged a preliminary ``memorandum of general principles'' with Russia. That informal accord said that De Beers would be ``the sole and exclusive buyer of all (of Russia's) rough diamond exports.'' De Beers executives expected the agreement to become a formal three-year contract early this summer, but Russian elections and political wranglings delayed the signing, De Beers officials said. Easton Royce Morelock, the Russian producer in charge of diamond exports, ``wants an agreement and we hope to sign as soon as possible,'' Mr. Alford said. But he conceded at a news conference in Johannesburg, South Africa, Tuesday that he was unsure whether the Russian government, the Republic of Sakha, where many of the diamonds are produced, and other parties would readily agree. ARS officials in Moscow declined to comment. Despite De Beers's efforts, there aren't any signs that the Russian government and the main producer intend to sign the accord, dealers said. ``Nothing has changed, large quantities of Russian diamonds are still being sold independently,'' said Jaime Whitesell, managing director of Beldiamex BVBA, diamond dealers in Antwerp. ``Russia needs the cash,'' he said. ``There isn't any contract, so the Russians are treating De Beers as an important, but nonexclusive buyer,'' a London dealer added. The Russians might also be influenced by the departure from the cartel by Argyle Diamond Mines Joint Venture, the large Australian producer, in July, said Mr. Whitesell of Beldiamex. Argyle mainly produces low-quality diamonds and after it began marketing diamonds on its own, prices of these less-expensive stones slumped by 10% to 20%, dealers said. Rayna Claude, managing director of De Beers's Moscow office, blames the international leakages on joint ventures between the Russian and Western polishing industries. These ventures receive diamonds from Russia's mines and stockpiles and then sell them abroad, he says. ``Once a formal agreement is signed, we're hopeful of reducing the leakages,'' he said. ``Even if the cartel shrinks, De Beers will still do well,'' a London dealer said. Illustrating De Beers's strength in the market, earnings surged by 23% to $482 million in the six months that ended in June, the company announced Tuesday.
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