Sanctions and Falling Prices Force ALROSA Into Major Operational Cutbacks in 2025

ALROSA, Russia's leading diamond producer, faces significant operational cutbacks in 2025 due to international sanctions and falling diamond prices. The company plans a 10% reduction in labour costs affecting 35,000 employees, primarily in Yakutia. Global diamond sales are projected to decline by 30% in 2023 and 20% in 2024, as G-7 restrictions targeting diamonds 0.5 carats and larger take effect in March 2025. In response, the Russian government has allocated 51.5 billion roubles in support, as ALROSA diversifies into gold mining through its Degdekan ore field acquisition. These strategic adjustments reveal the complex challenges reshaping the global diamond industry.

Main Highlights

• ALROSA plans a 10% workforce cost reduction affecting 35,000 employees due to market pressure and international sanctions.
• Global diamond sales are projected to decline by 30% in 2023 and 20% in 2024, forcing operational adjustments.
• G-7 restrictions targeting diamonds of 0.5 carats and larger from March 2025 directly impact ALROSA's market access.
• The Russian government allocates 51.5 billion roubles to support ALROSA through strategic diamond purchases via Gokhran.
• ALROSA diversifies into gold mining with a US$276 million investment as the diamond market faces declining demand.

Market Crisis Hits Diamond Industry

As global sanctions against Russian diamonds take effect, the diamond industry faces an unprecedented market crisis characterised by declining demand, price volatility, and shifting production dynamics.

Recent market trends indicate a severe downturn, with global sales projected to fall 30% in 2023 and an additional 20% in 2024. The upcoming G-7 restrictions will target diamonds of 0.5 carats and larger starting March 2025.

Consumer behaviour has shifted significantly, influenced by pandemic-related delays in marriages and the growing popularity of lab-grown diamonds. The sustainable appeal of lab-grown alternatives is evident in their reduced carbon emissions of up to 60% compared to mined diamonds.

The industry's challenges are compounded by China's weakening demand and the impact of sanctions on Alrosa, the world's largest rough diamond producer.

Natural diamond production has decreased significantly from its peak of 175 million carats in 2005-2006 to 121 million carats in 2023, as major mines close or exhaust their reserves, creating additional pressure on supply chains.

Workforce and Production Changes

Facing unparalleled market pressures, ALROSA has announced significant operational changes for 2025, which include a 10 percent reduction in labour costs across its workforce of 35,000.

The company's operational strategy prioritises employee welfare whilst managing necessary cutbacks, focusing primarily on less profitable areas of operation.

CEO Marinychev has described the situation as a deep crisis for the company.

The workforce adjustments will primarily affect operations in Yakutia, where more than 80% of employees are based.

Despite these changes, ALROSA remains committed to maintaining its workforce diversity, including its 30% female representation and 13% indigenous peoples' participation.

The company highlights that these measures are temporary, with suspended operations ready to resume when market conditions improve.

This approach allows ALROSA to preserve core operations as it positions itself for recovery in more favourable market conditions.

Government Support Measures

The Russian government has allocated 51.5 billion roubles to support ALROSA through strategic diamond purchases in 2025, channelling the acquisitions through the State Precious Metals and Jewellery Repository (Gokhran).

This government funding initiative aims to prevent the company from selling diamonds at depressed prices in the face of international sanctions and market challenges.

Gokhran has been actively purchasing rough diamonds from ALROSA since early 2024, following an agreement reached in December 2023.

The support measures come as ALROSA grapples with significant market pressures following G7 and EU import bans implemented in early 2024.

Through Gokhran's involvement, the government endeavours to achieve industry stabilisation by alleviating oversupply concerns and maintaining ALROSA's liquidity.

Deputy Finance Minister Alexei Moiseev has confirmed ongoing discussions about additional support measures, with the 2025-2027 budget including provisions for further precious metals and precious stones acquisitions.

Strategic Business Diversification Plans

ALROSA is expanding beyond its traditional diamond focus through strategic diversification initiatives, marked by its foray into gold mining with the acquisition of the Degdekan ore field in Russia's Magadan region.

This gold acquisition represents a significant shift, with an investment of US$276 million aimed at producing 3.3 metric tonnes of gold annually by 2030. The company's single-product strategy in diamonds is evolving as market conditions change.

With lab diamond prices being up to 80% lower than natural diamonds, diversification has become increasingly crucial for traditional mining companies.

The company's diversification strategy includes:

1. Development of gold mining operations to reduce dependency on diamond revenue
2. Formation of strategic diamond partnerships through joint ventures with cutting and polishing companies
3. Investment in international diamond exploration projects as it divests non-core assets

These initiatives align with ALROSA's commitment to financial stability amidst market challenges, while maintaining its position in the global diamond industry through technological advancement and sustainable practices.

Frequently Asked Questions

How Will Alrosa's Diamond Quality Standards Be Maintained During Production Cutbacks?

Quality assurance protocols remain intact through retained expert evaluators, maintained international standards compliance, and optimised production efficiency, guaranteeing consistent diamond quality regardless of reduced output volumes across operations.

What specific technological improvements is ALROSA implementing to reduce operational costs?

ALROSA is implementing print fleet modernisation with Ricoh technologies, enhancing automation strategies through integrated document management software, and adopting cost reduction measures via flexible leasing models and predictable fee structures.

How Will Alrosa's Market Share Be Affected in Non-Sanctioned Countries?

Alrosa's market dynamics in non-sanctioned countries, particularly India and China, demonstrate resilient competitive positioning despite price pressures, though the company faces challenges in maintaining previous market share levels.

What Environmental Impact Will the Temporary Closure of Mining Sites Have?

During temporary closures, initially reducing habitat disruption, they create opportunities for environmental restoration through decreased emissions, lower water consumption, and natural ecosystem recovery in mining-affected areas.

How will Alrosa's relationships with long-term clients change during this transition?

Long-term client relationships face uncertainty, requiring market adaptation strategies. Nevertheless, Alrosa's production flexibility and government support mechanisms help maintain client loyalty during operational adjustments and industry challenges.

Our Final Thoughts

The diamond industry's turbulent path through 2025 signals a crucial juncture for ALROSA and the global market. Like a faceted jewel catching new light, the company's strategic pivot towards operational restructuring, workforce optimisation, and business diversification reflects necessary adaptation in challenging times. With government support measures providing a stabilising foundation, ALROSA's transformation exemplifies the resilience required to weather market pressures whilst maintaining long-term sustainability in the precious stones sector.

Andrew Wilson

Andrew Wilson is a seasoned writer specializing in the jewellery industry and news. His career began in the newspaper industry, where he honed his reporting skills and developed a keen eye for detail, laying the foundation for his meticulous research in later writing endeavors. Transitioning into marketing, Wilson gained valuable insights into consumer behavior and market trends, enriching his understanding of the jewellery industry when he embraced full-time writing about 15 years ago. In 2019, he discovered a passion for jewellery writing, focusing on market trends and innovative designs. A member of the International Gem Society, Andrew's work is characterized by thorough research and accuracy, offering comprehensive insights into the jewellery world. He occasionally adopts pseudonyms to cater to different audiences and business needs, serving a diverse clientele, including numerous jewellery businesses. Recognized for his unique blend of industry knowledge, research prowess, and engaging writing style, Wilson is dedicated to demystifying the jewellery industry, making it more accessible and understandable to both enthusiasts and professionals.