Russia is the world's largest source of rough diamonds. In 2010, it accounted for 23.5% of the total diamond production in terms of volume, and 25% in terms of value.
Alrosa, the state-owned company, was the largest diamond manufacturer in the world the same year, followed by De Beers, Rio Tinto and BHP Billiton. The Russian diamond market is also facing a revival due to growing incomes and expenditure for luxury goods, especially in emerging countries.
New analysis from Frost & Sullivan (industrialautomation.frost.com), Outlook of the Russian Diamond Market, finds that the market earned revenue of $4.79 billion in 2010 and is estimated to reach $5.74 billion in 2015.
Russia possesses prospective kimberlite deposits, which are expected to enable further increase in production capacity by facilitating a shift to underground mining. However, the Russian diamond market is export driven and is heavily dependent on global demand. In 2010, the exports of Russian rough diamonds increased by 28%.
"The Russian diamond market is at a mature stage and it is unlikely that the CAGR will exceed 3.7% from 2011 to 2015," says Frost & Sullivan Research Analyst Monika Nowotnik. "However, in comparison with the global market, Russia still has the potential to exceed production capacity."
Although the outlook for the market looks bright with the upswing in consumer demand and climbing diamonds prices, there are some challenges throwing a cloud of uncertainty over its future prospects.
Large-scale mining activities have caused depletion of natural resources and environmental deterioration. During the long term, environmental protection will assume greater importance and safety regulations are expected to become more stringent in Russia, in line with global trends.
In addition, for the past 20 years, no large diamond deposits have been found in the world. All new deposits are low grade compared with existing ones. Companies are bound to face difficulties in mining for low-grade deposits in new, challenging locations, given the increasing complexity of extraction.
These circumstances indicate escalating costs of inputs, such as oil, steel and explosives. Mining companies will also be expected to meet strict safety requirements concerning the working conditions and protection of employees.
"In Russia, additional costs are generated by energy consumption and expenditure on heating and insulation, due to the harsh climatic conditions," says Nowotnik. "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. 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, modernisation of the devices and mining equipment will become extremely vital, and pave the way to market progression by helping optimize efficiency and productivity.
If you are interested in more information on this study, please send an e-mail to Anna Zanchi, Corporate Communications, at anna.zanchi[.]frost.com with your contact details.
Outlook of the Russian Diamond Market is part of the Industrial Automation & Process Control Growth Partnership Service program, which also includes research in the following markets: South African Diamond Market, Russian Metal Industry, and South African Platinum Group Metals Market. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents.