De Beers Refocuses Away From Alrosa

JOHANNESBURG, South Africa -- Diamond giant De Beers is likely to snub an opportunity to market more gems from Alrosa as it distances itself from its former role as cartel operator to focus on high-margin business.

De Beers' move to a modern business model will, analysts say, probably see it shrug off a European court decision last week that lifted curbs on De Beers buying diamonds from Alrosa, the world's second-largest producer.

"De Beers is not interested any more in getting maximum carats; De Beers is not interested in dealing with goods on a marginal basis," diamond consultant Chaim Even-Zohar said by telephone from Israel. "I don't think that De Beers is going to buy from Alrosa. The return of being a dealer is not that big."

De Beers declined to comment on the European court decision, saying it needed time to study the judgment.

On Wednesday, the court struck down a decision by the European Commission designed to stop De Beers buying rough diamonds from Alrosa by 2009.

De Beers' share of the rough diamond market has slipped from 80 percent, over a decade ago to just over 50 percent and that is due to drop further as it winds down its trading relationship with Alrosa.

Its trade with Alrosa is due to fall by $100 million to $500 million this year and to $400 million in 2008.

De Beers' margin on handling Russian diamonds was about 5 percent, less than half the level for selling its own mined output, a mining analyst in Johannesburg said.

A spokesman for Alrosa said De Beers would have to decide whether it was interested in increasing purchases from Russia, but the state company was focusing on domestic sales.

"The strategy of the company's development is to sell the main part of rough [diamonds] for all clients here in Moscow," Andrei Polyakov said by e-mail.

Source: The Moscow Times, Monday, July 23 — 2007