ALROSA, Russia’s largest diamond producer, plans significant operational changes for 2025 in response to challenging market conditions. The company will implement production cuts and reduce its workforce by 10%, primarily affecting managers and specialists across its 35,000-employee base. These adjustments come amid falling global diamond prices, inventory build-ups, and international sanctions impacting the company’s $4.5 billion annual revenue. The Russian government is supporting ALROSA through Gokhran’s commitment to purchase rough diamonds and a RUB 154.5 billion industry support package through 2027. These strategic moves position ALROSA to navigate through current market turbulence while maintaining core operational capabilities.

Main Highlights

• ALROSA plans to reduce its workforce by 10% in 2025, primarily affecting managers and specialists in non-profitable areas.
• Diamond production will decrease by 4.6% to 33 million carats in 2024, with further reductions expected in 2025.
• The company will temporarily close less profitable mines in the Yakutia region as part of strategic production adjustments.
• Workforce changes will affect approximately 35,000 employees across ALROSA’s operations by 2025.
• The Russian government supports ALROSA through Gokhran’s commitment to purchase significant portions of rough diamond production in 2025.

Market Forces Behind Production Cuts

Market forces have converged to create extraordinary pressure on ALROSA’s diamond production operations. The global diamond industry faces a perfect storm of challenges, with falling prices coinciding with significant inventory build-up in key markets like India. Production suspension plans will primarily target less profitable mining areas.

These market dynamics are further complicated by China’s economic slowdown and Western sanctions limiting ALROSA’s access to G7 and EU markets. The traceability mechanism proposed by the EU and G7 partners aims to prevent Russian diamonds from entering global markets through alternative channels. Industry analysts predict overstocked supply chains will take until 2025 to normalise.

The rise of lab-grown diamonds presents additional competitive pressure, as technological advancements have led to a 20-30% price reduction in synthetic stones.

This shift, combined with evolving consumer preferences towards sustainable alternatives, has disrupted traditional supply chain patterns.

The combination of high mining costs, regulatory restrictions, and changing consumer behaviour has forced ALROSA to re-evaluate its production strategy, leading to necessary operational adjustments in response to these market challenges.

Affected Operations and Production Areas

Several key operations within ALROSA’s diamond mining network face potential suspension as the company implements strategic production cuts across its facilities.

The primary focus of these production adjustments is centred on the Yakutia region in Russia’s Far East, where less profitable mining areas are being evaluated for temporary closure. A targeted labour reduction of 10% is expected to be implemented next year as part of the cost-saving measures. Staff meetings will emphasise proper disposal methods when handling sensitive operational documents.

The company’s approach highlights maintaining core operations as it suspends activities in borderline profitable areas.

To support this strategy, ALROSA may collaborate with Gokhran, the state-owned jewel repository, which could purchase portions of the company’s rough diamond production.

This flexible approach allows for quick resumption of suspended operations when market recovery occurs, ensuring the company can efficiently respond to improving conditions as it preserves its most profitable mining activities during challenging market periods.

Employee Impact and Workforce Changes

As ALROSA faces significant market challenges and Western sanctions, the company plans substantial workforce adjustments that will impact its 35,000 employees by 2025. As maintaining workforce diversity remains a priority, the company aims to reduce labour expenses by 10% through strategic staff reductions, particularly in areas with limited profitability. The company’s commitment to employee well-being includes access to the ALROSA Medical Centre operating across 28 locations. Similar to other major companies like Microsoft and BlackRock, ALROSA’s workforce reductions reflect the broader industry trend of optimising operations.

To support employee morale during this transition, ALROSA continues its commitment to professional development through its Corporate University, offering over 300 training courses. The company maintains its dedication to equal opportunities and workplace inclusivity, guaranteeing fair treatment regardless of background as it implements necessary structural changes.

Financial Performance and Outlook

As ALROSA implements its workforce adjustments, the company faces significant financial headwinds in 2024. Diamond production dropped by 4.6% to 33 million carats, affected by sanctions, reduced demand, and depressed rough diamond prices. The company plans to reduce its payroll by 10%, primarily affecting managers and specialists.

The company’s challenging position was further evident as it sold its stakes in Angolan diamond mines Catoca and Luele.

Despite these challenges, the company maintained its RUB 50 billion payment to the Yakutia government.

The G7 and EU sanctions targeting ALROSA’s $4.5 billion annual revenue have severely impacted the company’s market position.

The path to financial recovery appears complex, with the global diamond industry grappling with excess stock and economic slowdown in key markets like China.

Nevertheless, ALROSA’s investment strategies remain forward-looking, with an extensive Long-Term Investment Programme through 2028 focusing on sustainable development.

The company plans to maintain production levels through key projects at Udachny, Aikhal, and Mir-Gluboky, while preliminary forecasts suggest modest growth in diamond jewellery demand of 2-3% annually.

Government Support During Crisis

As global sanctions continue to affect ALROSA’s operations, the Russian government has implemented extensive support measures to stabilise the diamond industry.

Through its state-owned repository Gokhran, the government plans to purchase a significant portion of ALROSA’s rough diamond production in 2025, with a budget allocation of RUB 154.5 billion ($1.55 billion) for precious metals and stones through 2027.

These government interventions are designed to maintain industry stabilisation during the crisis period.

The company has faced declining diamond prices for two consecutive years, leading to challenging market conditions.

The State Fund of Precious Metals and Precious Stones provides essential financial backing to sustain production and employment levels, as well as helping ALROSA manage inventory pressures.

ALROSA has been forced to pause less profitable operations while maintaining the ability to quickly restart production when conditions improve.

This support mechanism enables the company to weather the current market downturn as it awaits price recovery, guaranteeing the economic sustainability of Russia’s diamond sector despite international sanctions.

Frequently Asked Questions

What Alternative Markets Is ALROSA Exploring for Future Diamond Sales?

ALROSA is expanding into emerging markets across Asia and Europe through luxury collaborations with retailers such as Chow Tai Fook and Tiffany & Co., as well as developing online platforms for direct-to-consumer sales.

How Will ALROSA Maintain Quality Control With Reduced Staff and Operations?

Quality assurance remains prioritised through focused staff training programmes, streamlined monitoring processes, and concentration of resources on key operational areas while maintaining established quality control protocols across reduced production volumes.

When Does ALROSA Expect the Global Diamond Market to Fully Recover?

As market recovery remains uncertain, industry analysts anticipate a revival in diamond demand by early 2024, with full stabilisation expected once inventory normalisation and mining capacity reductions are achieved.

What specific technological investments is ALROSA making to enhance operational efficiency?

ALROSA is implementing automation technology in underground mining operations, including automated dispatching systems at the Aikhal deposit, as well as investing in data analytics for fleet management and pit stop maintenance optimisation.

How Will Production Cuts Affect Alrosa’s Environmental Restoration and Conservation Commitments?

Like a river adjusting its flow, reduced production could actually improve environmental impact management, allowing ALROSA to concentrate resources more effectively on existing restoration initiatives whilst maintaining committed conservation targets.

Our Final Thoughts

ALROSA’s strategic production cuts and workforce reductions reflect broader market pressures in the diamond industry, akin to the great diamond recession of 1929. The company’s measured approach to scaling back operations while maintaining core assets demonstrates adaptive management during challenging market conditions. With government support and streamlined operations, ALROSA appears positioned to weather current market turbulence and emerge as a more efficient operation by 2026.