Russian diamond market continues to grow

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Sales growth expected to rise 3.7% next year as demand for rough booms

The Russian diamond market is preparing itself for further growth in 2012, with sales expected to creep up a further 3.7% next year.

Russia has become the world’s largest source of rough diamonds, according to a new report by Frost & Sullivan. The country accounted for 23.5% of the world’s total diamond production in terms of volume in 2010 and 25% in terms of value.

The Russian diamond market – which is mined by Alrosa, De Beers, Rio Tinto, BHP Billiton and others – was worth US$4.79 billion (£2.99bn) in 2010 and is expected to grow to US$5.74 billion (£3.59bn) in 2015. Exports of rough Russian diamonds rocketed 28% in 2010.

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Prospective kimberlite deposits in the country could offer growth for the industry and shift the industry’s focus to underground mining.

Frost & Sullivan research analyst Monika Nowotnik said: “The Russian diamond market is at a mature stage and it is unlikely that the CAGR will exceed 3.7% from 2011 to 2015. However, in comparison with the global market, Russia still has the potential to exceed production capacity.”

While the report offers it bright outlook for the Russian diamond market, it also outlines some environmental challenges for the country’s industry. Large-scale diamond mining has caused the depletion of natural resources and environmental deterioration and as environmental protection becomes more important it is likely that rules and regulations will become more stringent.

It also pointed out it is unlikely that any large-scale diamond deposits will be found – as there have been no large diamond sites uncovered anywhere in the world for 20 years – and so the cost of setting up mining sites will be relatively high compared to the returns.

Nowotnik said: “In Russia, additional costs are generated by energy consumption and expenditure on heating and insulation, due to the harsh climatic conditions. However, the profitability of the diamond market depends on the balance between rising extraction costs and growing diamonds prices.”

Faced with this scenario, Russian diamond manufacturers are striving to improve their techniques to enrich low-grade ore by using modern equipment, according to Frost & Sullivan. Moreover, they have to modify the enrichment process of the ores to limit the high transportation costs of low-grade ore by processing at the site or using larger monster trucks.

Underground mining requires more resistant equipment that can function in harsh environments as well as meet strict safety requirements. Going forward, the report states that modernisation of the devices and mining equipment will become extremely vital and will pave the way to market progression by helping optimise efficiency and productivity.

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