Diamonds: Forever Worthless

The global recession sapped demand for all kinds of commodities — like steel and grain — yet small burlap bags are still arriving by the planeload at Russia’s state-owned diamond company.

Each day, the contents of the bags spill into the stainless steel hoppers of the receiving room. The diamonds are washed and sorted by size, clarity, shape and quality; then, rather than being sent to be sold around the world, they are wrapped in paper and whisked away to a vault — about three million carats worth of gems every month.

Russia quietly passed a milestone this year: surpassing De Beers as the world’s largest diamond producer. But the global market for diamonds is so dismal that the Alrosa diamond company, 90 percent owned by the Russian government, has not sold a rough stone on the open market since December, and has stockpiled them instead.

As a result, Russia has become the arbiter of global diamond prices. Its decisions on production and sales will determine the value of diamonds on rings and in jewelry stores for years to come, in one of the most surprising consequences of this recession.

“We have to tell people that diamonds are valuable,” says Aleksandr A. Malinin, an adviser to the president of Alrosa. “We are trying to maintain the price, just as De Beers did, as all diamond producing countries do. But what we are doing is selling an illusion,” meaning a product with no utility and a price that depends on the continued sense of scarcity where there is none. -- New York Times