Jan. 28 (Bloomberg) -- ZAO Alrosa, the world’s second- largest diamond producer, halted sales of gems to customers except for the state stockpile since late December after demand evaporated because of the deepening economic slowdown.

“We aren’t selling anything in the market at the moment,” Andrei Polyakov, a spokesman for the company, said by telephone from Moscow yesterday. The market may begin to recover in four months, he said.

Diamond prices have dropped 8.6 percent in the past year, an index from PolishedPrices.com showed. Prices will slide further as a weaker economy will curb spending on luxury items, Des Kilalea, an analyst at RBC Capital Markets, said last week.

With demand shrinking, Russia’s state-run precious-metals and gemstones repository Gokhran is buying gems to help the monopoly producer proceed with expansion plans.

Alrosa mines a quarter of the world’s diamonds. The company had sales of about $2.3 billion in 2007, according to an October report from James Picton, an analyst at BMO Capital Markets in London. De Beers, the world’s largest diamond producer, had sales of $6.2 billion, he wrote.

De Beers said Jan. 21 it will reduce the amount of rough gems offered to customers by about 50 percent until April after U.S. retail sales slumped during Christmas.

Mining Stoppages

Some other diamond producers are cutting output. DiamondCorp Plc, which is based in London, said yesterday it stopped processing mining waste because extracting gems that way isn’t profitable. Diamond prices in a November tender were half the level achieved earlier in 2008, the company said.

Petra Diamonds Ltd, a St. Helier, Jersey-based company that mines in South Africa, has reduced exploration and withdrawn from the Alto Cuilo project in Angola. Toronto-based BRC DiamondCore Ltd. said Jan. 14 it’s extending a shutdown at its South African operations and starting talks with labor unions on job cuts because of “depressed” prices.

To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net

Last Updated: January 27, 2009 16:00 EST