May 28 (Bloomberg) -- Russia will avoid flooding the world diamond market, as it did in the 1990s, with the stocks it has been building up since demand slumped last year, the nation’s monopoly producer ZAO Alrosa said.

“The situation is completely different and the mentality changed a lot,” Chief Executive Officer Sergei Vybornov said in an interview. “Nobody wants to destroy the market.”

More than a decade ago, Russia began offloading rough, or uncut, diamonds as its need for hard currency became acute, leading to a rift with distributor De Beers. This time, the state and Alrosa will coordinate to avoid a repetition of events that “crushed the market for a very long time,” Vybornov said.

Polished gem values have fallen by an average 31 percent since peaking in August, according to PolishedPrices.com, as the global economic slowdown prompts consumers to curb spending on luxury goods. Gem Diamonds Ltd., the operator of the Letseng mine in Lesotho, said this month that first-quarter diamond prices collapsed 52 percent from a year earlier.

State-owned Alrosa suspended sales to the market last year, instead shipping gems to government depository Gokhran, Vybornov said on May 26. As a result, the company pared output by about 4 percent, he said, in contrast with De Beers’s 91 percent cut in the first quarter. This year, in a sign of improving conditions, it plans to offer about two-thirds of production to the state.

Other producers are also anticipating a rebound.

Resuming Sales

De Beers, the world’s biggest diamond producer, has resumed operations at a joint venture in Botswana that produces a fifth of global supply after suspending output in February. Gem Diamonds CEO Clifford Elphick said prices rose by “low single- digit percentages” at recent sales, while Petra Diamonds Ltd. chief Johan Dippenaar said declines had stopped.

Alrosa is resuming sales of rough diamonds to the market this month, Vybornov said, with as much as $1 billion going to 15 companies in Antwerp by the end of the year.

That may spur a turnaround in the Belgian city, which handles most of the world’s diamonds, after imports tumbled 45 percent in the first four months. Exports also fell 30 percent, according to the Antwerp World Diamond Centre trade group.

“Prices and sales appear to be stabilizing as consumers realize that the sky has not fallen in,” Avi Paz, president of the World Federation of Diamond Bourses, said in an e-mailed statement from Antwerp yesterday. More than 1,500 international diamond companies have their headquarters in the city in an area called the Diamond Square Mile, which has four diamond bourses.

Seeking Influence

Alrosa may gain influence over the diamond market as a result of Russia’s increased holdings of gems, and buy mining companies that aren’t able to survive independently, including some that may be listed in London and Toronto, Vybornov said.

“It would be a good time for sure to look at possible mergers and acquisitions, but we need first to get a clear vision for the sales,” he said.

“We will have these stocks, huge stocks, after the crisis,” he added. “We will play a definitely much more important role than before.”

To contact the reporters on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net Ellen Pinchuk in Moscow at epinchuk@bloomberg.net.

Last Updated: May 28, 2009 04:38 EDT