Russia Pushes Downstream as Diamond Centers Compete for Value

Have you been following developments in Russia vis-à-vis its diamond industry? They’re worth watching as the country pushes to expand its domestic diamond manufacturing sector.

This week, Alrosa CEO Pavel Marinychev met with Russian deputy finance minister Alexey Moiseyev and Smolensk region governor Vasily Anokhin to advance the development of a domestic diamond cutting cluster in Smolensk and the Republic of Sakha (Yakutia). Marinychev discussed the same initiative with President Vladimir Putin earlier in August.

The project, slated to come into effect on March 1, will provide Russian manufacturers with access to high-quality rough diamonds at terms intended to make cutting profitable and attract investment in the sector. The government is also planning to introduce an 8% export duty on rough diamonds larger than 0.45 carats to incentivize local manufacturing. It recently delayed the levy from September 1 to March 1.

That leaves Alrosa in something of a dilemma, given its status as the world’s largest diamond miner and its reliance on exports for some 90% of its production. At the same time, it may be designed to benefit Alrosa as it is difficult to separate the manufacturing push from the geopolitical constraints governing Russia’s diamond trade, or from the depressed state of the market.

Russian diamonds are sanctioned by the G7 countries, Canada, France, Germany, Italy, Japan, the United Kingdom and the US, which together account for at least two-thirds of global diamond jewelry sales.

Assuming those sanctions remain in place, Alrosa is increasingly dependent on other markets, notably China and India. That has hardly insulated it from the downturn. The company reported a net loss of RUB 10.67 billion ($130.1 million) in the first half of 2026, compared with a profit of RUB 39.03 billion ($476.1 million) a year earlier. Revenue fell 36% year on year to RUB 74.16 billion ($904.5 million), based on Russian Accounting Standards.

The decline likely reflects both the restrictions on where Alrosa can sell and the broader weakness in the diamond market.

From our perspective, therefore, Russia’s manufacturing push is another example of a producing country seeking to extract more value from its diamond resources.

There’s good reason for Russia, and Alrosa, to do so. I see at least four:

1. There are potentially better margins further downstream. Selling diamonds in polished form enables Russia to capture some of the value currently generated in manufacturing centers outside the country.

   
   

2. Polished is easier to sell than rough in current market conditions. The rough market remains under considerable pressure, while polished offers access to a broader range of buyers and end markets.

   
   

3. Domestic manufacturing creates a captive source of demand for Alrosa rough. Building a viable cutting sector gives the miner an additional outlet for production at a time when its traditional customer base has narrowed. 

   
   

4. Exporting diamonds as polished rather than rough simplifies the route to market for buyers of Russian goods. Buyers can source finished diamonds directly from Russia rather than purchasing sanctioned rough and arranging for it to be cut elsewhere, reducing the number of transactions and intermediaries involved.

Russia’s manufacturing push, therefore, is about more than simply supporting its cutting industry. It is an effort to extract more value from its diamond production while adapting to a market in which both demand and access to buyers have become more constrained. In that sense, Russia joins a growing list of producing countries looking further downstream for solutions, even if its circumstances are somewhat different.

This blog first appeared in the August 24 Pressing Matters Executive Memo. Read the full memo here, Pressing Matters.

Image credit: Worker overseas traditional diamond sawing machines. Alrosa)