Rough production from ALROSA, Russia's main producer, amounted to a stable $750 million in the first half of the year. Additionally, Uralalmaz produced about $10 million in rough from the Perm placer deposit.
During the first half of the year, there was a marked increase in rough supply to domestic processing firms, totalling about $500 million. About $450 million came from ALROSA and $40 million from Gokhran. All Ural diamonds were processed by Lev Leviev's cutting factory, Kama-Kristall, in Perm.
The general director of ALROSA'a sales division, Yuri Dudenkov, told RDR that demand began to show signs of strengthening in February, and domestic sales have increased monthly since then. "Domestic rough sales are ahead of the same period last year, and ahead of the second half of 1998 as well," he said.
With the abundance of rough, several processing firms that had been on part-time schedules are now working at full capacity. One example is the Moscow factory Almi, a joint venture of Ubex (Belgium) and Moscow partners.
Surplus Goes to
Subcontractors
"There is more rough for the cutting factories," said Ararat Evojan, vice-president of the Russian Association of Diamond Manufacturers, "and our members have received rough at about $200 million. Some factories received a surplus of rough. For example Smolensk Kristall received enough to expand its production by subcontracting to factories Belorussia and the Ukraine."
A few foreign diamantaires are currently considering increasing their activity in Russia. Itzhak Bannai, co-owner of five firms in Russia, said that he is ready to invest an additional $2 million to gain more production capacity and create about 500 jobs, if ALROSA continues its current supply policies for the domestic market.
There are two main reasons behind the expansion of Russian processing. The first is the sharp devaluation of the national currency. As a result, processing expenses like electricity and rent have decreased. This means that a wider assortment of rough is now profitable to produce. The Russian industry can now cut -9+7 rough up to rejection of 4 Blk.
Tax Favors Domestic Sales
The second reason is the 5 percent export tax for rough and zero tax for polished. Under these conditions, ALROSA prefers to sell more rough on the domestic market. ALROSA sends to De Beers the minimum quota — the half of the basic annual $550 million run-of-mine, which comes to about $270 million.
Although the 5 percent export tax was imposed for a limited six-month term that is up on November 1, some federal ministers predict the term will be extended.
Moscow Bourse Works
The Diamond Chamber of Russia held its first trading session from May 24-27. About 20 organizations participated, including the state-owned bodies Gokhran, Almazyuvelirexport and Smolensk Kristall, and private firms like Smolensk-Tache (Smolensk), Mosalmaz and Almoss (Moscow), Baltalmaz (Kaliningrad), Tsirkon (Taganrog), Orel-Almaz (Orel) and Tuymaada Diamond (Yakutsk). Officers of the Ministry of Economics, Financial Ministry and Assay Chamber visited the bourse.
Itzhak Forem, president of the World Federation of Diamond Bourses, observed the sessions and met with ALROSA president Vyacheslav Shtyrov and head of the Gokhran German Kuznetsov to discuss the results.
Although the total value of transactions was relatively small — about $500,000 — Diamond Chamber President Sergie Ulin told RDR that it was an encouraging first step. It demonstrated the ability of the bourse to operate. However, the future is clouded for now by legal problems and obstructions resulting from the state control of diamond deals in Russia.
Observers believe the legal strictures on the diamond business must been loosened to allow for a variety of transactions. Only after a liberalization of the diamond business can the Moscow bourse work normally.
Other critics of the current system say that representatives from 70 Russian diamond firms from an area stretching from the Pacific to the Baltics cannot do business in one chamber. Sergei Ulin has discussed opening branches of the Diamond Chamber in Yakutsk, Ekarinburg, St. Peterburg and Kaliningrad. But the feasiblity of that plan remains to be seen.
Having completed its test run, the Diamond Chamber has a right to request membership in the WFDB. Forem said during a Moscow press-conference that he decided to recommend the Moscow bourse for membership. The topic is likely to be on the agenda of the WFDB and IDMA Presidents' meeting scheduled for July in Moscow. The formal vote would occcur at the World Diamond Congress in 2000.
