Japan Plans Diamond-Polishing Plants in Russia : Gems: The effort could reduce giant De Beers’ dominance in Japan, some say. De Beers says it will have little impact.

A small Tokyo diamond outfit is dipping into the gem trade in eastern Russia in a move traders say could chip away at the dominance in Japan of market giant De Beers.

Arda Co., an independent jewelry firm, agreed in May to set up diamond-polishing plants in Sakha. The region, which accounts for virtually all of Russia’s output, is one of the world’s biggest diamond producers.

Arda plans to market the finished diamonds in Japan, which has become the largest single market in the world.

“We want to make the mineral-rich Sakha . . . (region) like Kuwait in Siberia by exporting polished diamonds directly from there to the Japanese market,” said Hiroko Karata, Arda’s president.

“But De Beers dominates the world diamond industry and may feel uncomfortable with our plan,” she said.

De Beers Centenary AG, the Swiss arm of De Beers Consolidated Mines Ltd. of South Africa, controls nearly 80% of the international rough-diamond trade. It restricts gem sales to clients when demand falls, in order to stabilize the market.

Traders say that if the Sakha-Japan operation distributes diamonds at cheaper than market prices, it could eventually affect De Beers’ sales activity in Japan.

“Japanese diamond imports have been hit by the economic slowdown to begin with, and if a newcomer brings cheap diamonds into the market, a general slide is inevitable,” a dealer at one trading house said.

“It’s not our intention to confront De Beers, but to cooperate,” Karata said. “We pay our respect to De Beers for maintaining the stability of diamond values for many years.”

Arda decided to set up the venture after Sakha secured the right in December, 1991, to sell 10% of its rough diamonds independently, a share that increased to 20% in March, 1992. Previously, Sakha had to sell all its output to the state-owned national diamond firm.

Another Japanese jewelry company, FR Corp., will be in charge of distributing the diamonds that Sakha produces. FR also plans to sell Sakha-made diamonds in South Korea and Taiwan, company officials said.

Japan’s polished diamond imports surged to 279.2 billion yen in calendar 1991 from 135.2 billion in 1985, Finance Ministry data show.

“Russian diamonds are very popular for their good quality, and we are going to start exporting them as early as September,” Karata said. “Our initial target is to export 50,000 to 100,000 carats of polished stones per year.”

Traders see the operation as a challenge to the De Beers group. “The very point of their deal is to cover both the upstream and the downstream of the diamond business and bypass De Beers,” said a diamond trader who asked not to be identified.

But Richard Dickson, a spokesman for De Beers Centenary AG in London, said the new effort will not have a major impact on the global diamond industry.

“The Russians have cut and polished a percentage of their total diamond production for well over 20 years. If Sakha does start its own manufacturing, it will be following a traditional pattern,” he said.

“We would disagree totally with those who suggest that it would be a challenge to the stability of the diamond industry, which De Beers has so carefully maintained for so many years,” Dickson said.

De Beers already markets Russian rough diamonds under a five-year deal signed in 1990 with the former Soviet Union.

“We are not going to take any action and will merely watch to see how these projects may develop,” Dickson said.