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
The Queen and the letter sent to Charlie
Arts and Entertainment
Eurovision Song Contest 2015
EurovisionGoogle marks the 2015 show
Two lesbians hold hands at a gay pride parade.
peopleIrish journalist shares moving story on day of referendum
Arts and Entertainment
<b>Kathryn Williams</b>
When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
booksKathryn Williams explores the works and influences of Sylvia Plath
Liz Kendall played a key role in the introduction of the smoking ban
newsLiz Kendall: profile
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?