Russians confound De Beers

Moscow diamond glut is hard to control, writes Paul Rodgers

A TOP-LEVEL meeting in Moscow last week between De Beers, the world's largest diamond producer, and Russia, its rival, has failed to calm fears about the sector's future. Although the two sides have agreed to start negotiating again after talks stalled in March, they are no closer to resolving the production issues that are pushing prices down and costing the worldwide price-fixing cartel hundreds of millions of pounds a year

Gary Ralfe, managing director of the Central Selling Organisation (CSO), the 64-year- old co-operative founded by De Beers, joined Nicholas Oppenheimer, the company's deputy chairman, to meet Russian Prime Minister Viktor Chernomyrdin and his deputy Oleg Davydov.

Official reports of the hour-long meeting were positive, but there are fears it could re-ignite the political squabbling within Russia that has made agreement difficult. The last time De Beers went over the head of Yvgeny Bychkov, chairman of the Komdragmet committee for precious metals and gems, it was rebuffed by the finance minister. "It was ham-fisted," said one observer. "All it did was antagonise Mr Bychkov."

Insiders admit that the company is finding it harder to deal with a democratic Russia than the old Soviet Union, where one man had authority over the entire sector. By going to Mr Chernomyrdin, the company hoped to regain that certainty. It wants to sign a new five-year agreement on rough diamonds before the current one expires in December.

But diamond industry analysts say the talks may result in an increase in official exports from Russia but no cut in unofficial "leakage" of gems. The CSO would have to spend more soaking up excess supply on the open market, while De Beers and other cartel members could face cuts to their quotas - currently only 85 per cent of production.

The quotas have created a mine-head "hidden stockpile" estimated to be worth $26bn (pounds 16bn). The CSO lowered prices of some diamond grades by more than 10 per cent recently.

"The Russians won't shoot themselves in the foot, but they're going to increase output over the next five years. The only questions is how much," said James Picton, a Cape Town based diamond consultant for Johannesburg brokerage house Anderson Wilson & Partners. Mr Bychkov's deputy, Leonid Gurevich, has talked about increasing the value of official production five-fold to $5bn in five years.

Russia has almost 800 kimberlite pipes, geological formations where diamonds are found, of which a dozen are economically viable and eight are being developed. It also has a stockpile that could be worth up to $7bn. Another $1bn of stones is on deposit in London as collateral for a loan due to be repaid at the end of this year.

Under the existing agreement, Russia is supposed to sell 95 per cent of its diamonds through the CSO, the rest going to its own polishing industry. But for several years it has been bypassing the system. De Beers estimates Russia sold an extra $1bn of jewels last year. Some were smuggled out, while others were sent abroad under joint venture contracts with polishing houses that were supposed to return finished gems. Another method was to polish one tiny facet of each diamond so that it no longer qualified as rough.

De Beers appears willing to let the Russians polish more diamonds, but is eager to keep the total number it produces under control. Its main fear is that demand for diamonds would collapse if the public lost faith in their value. Mr Picton argues that demand is elastic: if the price fell, people would spend the same amount, but on bigger jewels. If agreement cannot be reached, his theory may be put to the test.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
News
people
Voices
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn