Alrosa has announced a significant change in its sales approach for the year 2024 – it has committed to selling its entire diamond production for the year directly to the Russian government, a move that deviates markedly from its previous sales strategies.
This decision comes amidst escalating sanctions pressure, with the G7, which accounts for 70% of the diamond market, tightening its restrictions on Russian diamonds.
Government Procurement of Diamond Production
The Finance Ministry’s Gokhran, Russia’s repository for precious metals and stones, acquired Alrosa’s entire diamond output for March 2024 and plans to maintain this purchasing pattern throughout the year. This arrangement is not unprecedented but is notably on a much larger scale than previous transactions, particularly when compared to the $100 million to $200 million purchases during periods of low demand, such as the economic downturn in 2009.
Financial Implications and Market Strategy
Alrosa, with sales amounting to $3.55 billion in the previous year, faces a challenging landscape due to the G7’s sanctions, which currently target all Russian diamonds over 1 carat, with an impending expansion to include stones of 0.50 carats and above from September 2024. The financial details of Gokhran’s commitment to Alrosa have not been fully disclosed, yet the 2024 budget caps Gokhran’s expenditures on precious metals and stones at approximately $558.1 million, indicating the scale of the government’s intervention.
Alrosa’s strategic shift in its sales strategy, in direct response to increasing sanctions from the G7, underscores the intricate relationship between geopolitical dynamics and the global diamond trade. This development serves as a critical reminder of the importance of flexibility and strategic planning in the face of geopolitical pressures.
