Ukraine war: Row as Russian diamonds continue to hit the market despite sanctions | Business News

 Ukraine war: Row as Russian diamonds continue to hit the market despite sanctions |  Business News


Many commodity markets have been upended by Russia’s invasion of Ukraine.

The latest looks set to be the diamond market.

Russia is home to Alrosa, the world’s largest producer of rough diamonds by volume, which is listed on the Moscow stock market.

Putin’s military chiefs ‘too afraid to tell him the truth’ about battlefield losses – latest on Ukraine

The £ 5.6bn company, in which the Russian government owns a 33% stake, accounts for 29% of global rough diamond output and 95% of output in Russia itself.

Lucara says it has found a number of high-value diamonds in recent years.  File pic
Image:
Alrosa, the world’s largest producer of rough diamonds by volume, reported revenue of $ 3bn in COVID-hit 2020. File pic

Prior to the war, the business had been doing reasonably well, upgrading its diamond production forecasts for 2022 just before Christmas last year and unveiling ambitious new investment plans.

Then came the invasion and, within days, Sergei Ivanov, Alrosa’s chief executive, was one of the first senior Russian executives put on the US sanctions list.

Mr Ivanov’s father, also called Sergei, is a former chief of staff to Vladimir Putin and served alongside the Russian president in the KGB. The US also sanctioned Alrosa itself – something the UK government only got around to doing six days ago.

However, the measures are not thought to have had much of an impact, for a couple of reasons.

One is that the sanctions imposed against Alrosa only forbade debt and equity transactions with the company – trading in its bonds or shares.

The other is that the majority of Russian diamonds are sold and exported in a rough state, going on for cutting and polishing in other countries, most notably India, the world’s leading destination for such activities.

Russian President Vladimir Putin attends a meeting with officials and cultural workers, including young holders of prizes for cultural achievements, via a video link in Moscow, Russia March 25, 2022. Sputnik / Mikhail Klimentyev / Kremlin via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY.
Image:
The father of Alrosa’s CEO has strong links to Vladimir Putin (pictured)

Such diamonds, when cut and polished, can be classified as Indian rather than Russian. India has responded crossly to suggestions that its diamonds are ‘blood’ or ‘conflict’ diamonds and its media has noisily highlighted the risks to Indian workers of a tightening of the sanctions regime against rough diamonds sourced from Russia.

What’s not in dispute, though, is that Alrosa’s rough diamonds have continued to find their way onto the market – potentially bringing in money to fund Mr Putin’s war effort.

Read more: Rises in prices of bread, meat, diamonds and gas – how the invasion will affect the UK

Accordingly, the US government stepped up its sanctions, announcing a complete ban on Russian diamond imports earlier this month.

But there are still concerns that Russia is making money from diamond sales – and how to respond has caused division within the industry.

A particular dividing point has been the stance of the Responsible Jewelery Council (RJC), the industry body that seeks to uphold ethical standards in the diamond supply chain and, as it puts it, “promote trust in the global jewelery and watch industry”.

Alrosa voluntarily stepped down from the RJC board earlier this month but there has been unhappiness among members that the RJC has not completely severed ties with Russia.

Matters came to a head on Wednesday when the Danish jewelry giant Pandora resigned its membership of the RJC after nearly 13 years.

Pandora is based in Denmark.  Pic: AP
Image:
Pandora is based in Denmark. Pic: AP

Alexander Lacik, Pandora’s chief executive, said the decision was due to the RJC’s failure to suspend memberships and responsible business certifications of Russian companies and its failure to urge members to suspend business with Russia.

He said: “We are shocked and saddened by the unprovoked attack on Ukraine, and our thoughts go to the people of Ukraine, who are victims of this senseless act of military aggression.

“The war requires all businesses to act with the utmost responsibility regarding any interactions or business dealings with Russia and Belarus.

“Pandora cannot in good faith be a member of an association that does not share our values.”

Please use Chrome browser for a more accessible video player

Mr Zahawi said any peace deal must be negotiated face to face between President Zelenskyy and Putin.

The RJC’s membership list is a ‘who’s who’ of the global watchmaking and jewelery industries and includes Swatch, Rolex, Cartier, Seiko, Tiffany, Signet and Garrard & Co. Therefore, the move may put pressure on other prominent RJC members to follow suit.

Tobias Kormind, managing director of Europe’s largest online diamond jeweler 77 Diamonds, which stopped stocking Russian diamonds earlier this month, said: “Pandora’s decision is a good one.

“But bear in mind, Pandora’s move is somewhat self-serving, they don’t source from Russia, while lots of Responsible Jewelery Council members round the world do.”

Also likely to come increasingly under the spotlight are the roles played by the major diamond wholesaling and trading centers around the world, Mumbai, Dubai and Antwerp.

At least a third of Alrosa’s rough diamonds were sold in Antwerp alone – and the center, a major contributor to the Belgian economy, will therefore be vital in enforcing a ban on Russian diamond exports.

Image:
Dubai is growing as a diamond market hub

It has been suggested that the Belgian government has been reluctant to pressurize Antwerp into tough action for fear of Alrosa’s business simply being diverted to other locations, particularly Dubai, which has been taking market share from Antwerp and which has also proved an attractive destinations for Russian oligarchs relocating in a hurry.

Either way, any attempts to clamp down on Russian rough diamond sales will take a while to percolate through the system.

And there is even less clarity over what it means for diamond prices.

The Russian government also owns a stockpile of precious stones, the Gokhran, which it uses to stabilize global diamond prices by buying from Alrosa and releasing onto the market at a time of its own choosing. The size of that stockpile is a closely guarded secret but could be used by Moscow to raise money, if necessary, by selling into markets like India and China.

So potentially the Kremlin could profit if a scarcity of Russian gems pushes up prices and creates demand that it can meet through the back door.

Diamond mining in Russia is relatively recent compared to the country’s wider history of resource exploitation, having first become properly established following the discovery in 1954 of a diamond pipe in Zarnitsa, in Russia’s inhospitable far east.

The old Soviet Union set up a body called Yakutalmaz to develop the deposits three years later and the state began exporting rough diamonds in 1959. The Soviet Union became the world’s largest diamond producer during the 1960s but progress was held back due to the Soviet Union’s ramshackle economy.

Following the collapse of the Soviet Union, at the end of 1991, the industry – unlike big players in, for example, the oil, gas and steel sectors – somehow avoided being snapped up on the cheap by individual oligarchs. Boris Yeltsin privatized the industry, winding up Yakutalmaz and creating Alrosa (Almazy Rossii or Diamonds of Russia), at the beginning of 1993. It took control of extracting, sorting and marketing diamonds, operations previously undertaken by separate bodies.

The operational performance improved over time and, in the early noughties, Alrosa not only began partnering with other international mining companies but also taking stakes in foreign mines.

More recently it has been pioneering a new tracking process by which a ‘nano mark’ is imprinted into the crystal structure of a rough diamond – making the traceability of that gem easier.

Such innovations had, before the war, given Alrosa a reputation in the industry for good ethical conduct. That now feels quite ironic.



Source link

Related post