Companies in these industries are growing due to factors that have little to do with Russia, namely the world-wide celebration of the millennium and the events of September 11th.

Diamonds. In the last five years, the diamond industry (or to be more precise Alrosa, which produces more than 99% of Russia’s diamonds) has maintained its level of production in real terms (in both the amount of mining conducted and carats produced). All mines are operating at full capacity. Naturally, when one deposit is worked out, others are put into production. However, due to a decline in world diamond prices in 2002 of about 10% in dollar terms (the decline came after a rise in demand on the eve of the new millennium), Alrosa’s earnings fell. In 2003, however, Alrosa’s main economic indicators looked far better. World diamond prices returned to stable levels and for this reason, despite the weak dollar, diamond earnings are expected to rise by 6.4%.
Cut diamonds. A market-related decline for diamonds worldwide in 2002 had minimal effect on the Russian diamond-cutting industry. This is connected to the fact that around half of the industry’s production consists of Good or Excellent-grade gems, and the demand for this type of luxury product does not depend on large-scale, market-wide trends.
In 2002, total production was $900 million, approximately the same as in 2001. Despite some declines in prices for cut gems (connected to prices for raw diamonds), earning figures remained unchanged for two reasons, one objective and one subjective. First of all, the number of large and particularly expensive diamonds increased. This was due to an increase in sales of large uncut diamonds from the State Treasury at a series of auctions. As a rule, the main purchases at these auctions were made by Kristall (the leader in the Russian gem-cutting industry) and Ruis Diamond. Secondly, large companies like Kristall have perfected their sales approaches by going straight to consumers abroad without middlemen and creating their own recognized brand name.

Gold. Russian gold production began to increase after the financial crisis of 1998. As a result of the falling ruble exchange rate, production costs fell and gold production became highly profitable. Even when world prices were fairly low ($260-290 per troy ounce), this attracted both Russian and foreign investors to the industry. Yet another stimulus for industry growth in 2002 was the rapid increase of the exchange price for gold to $380 after September 11th.
Russia is now the fifth largest gold producer in the world, up from seventh in 1999. More than 90% of this gold is exported, either by means of pure sales or entry into metal accounts as a component of the Central Bank’s reserves). Experts are predicting that gold production in Russia will continue to grow by 5% a year and in three to four years will total 200 tons a year, thanks to Russia’s gold resources (Russia has the largest surveyed gold deposits in the world) and to investor interest in gold mining (at present around 500 small and mid-sized companies are actively working on new projects).

Read also:
Russia`s Biggest and Brightest: The Expert 200 for 2003
The Expert 200. Financial markets
The Expert 200: Oil and Natural Gas; Energy and Electricity
The Expert 200: The Machine Building Industry
The Expert 200: The Metal Industry in Russia
The Expert 200: The Chemical Industry
The Expert 200: The Food and Tobacco Industry

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