The Diamond Market: How one company controls the entire industry
Diamonds are a timeless gem, always in fashion. Throughout history, diamonds have been a staple for their beauty and elegance and have been revered for their pricelessness. In fact, Ancient Greeks held the belief that diamonds were splinters of stars that had fallen on earth. Today, diamonds are some of the most valuable gemstones in the world, and it reflects in their upward pricing trend.
Diamond prices have increased by an average of 4% each year in the last decade, bringing the average increase over the decade to 32-33%. Diamonds are one of the most expensive gems around (think: Beyonce’s $5 million engagement ring) and even à simple, nondescript solitaire diamond ring will cost upwards of $600. So, you’re probably thinking, “Diamonds are so expensive because they’re rare, right?” Nope. Diamonds are not rare, not at all. Rather, they’re naturally abundant in the Earth's crust, more than silver is. So, why are they so expensive?
Diamonds and De Beers:
Some of the most well-known jewellers globally include Forevermark and De Beers Diamond Jewellers, both of which are jewellery retail brands owned by parent company De Beers. De Beers is the world’s largest diamond mining company, controlling à staggering 30% of the industry. The De Beers monopoly has existed for nearly as long as the company has. In their pinnacle, the company’s market share of rough diamonds was 90% in the 1980s, and now although their share has lowered due to independent competition, they still have à powerful monopoly.
De Beers has been notorious for using underhanded methods to dominate the market, right from the start. When diamonds were first discovered in Pretoria in the 1880s, De Beers tried to buy the mine off of the owner who refused and instead sold it to Ernest Oppenheimer. However, during the First World War, the mine became part of the De Beers syndicate and finally, in 1929, Ernest Oppenheimer himself became the chairman of the company. After multiple mines were discovered in parts of colonial South Africa, Oppenheimer recognised that De Beers’ then-90% market share could be used to lessen the production of diamonds, as a result making them scarce and growing their value, à approach still utilized by the group.
How do they do it?
De Beers manipulates prices by controlling the supply and demand. De Beers owns multiple mines around the world, but sells the diamonds mined only 10 times à year at auction events called “sights”. Around 125-250 “Sightholders” or purchasers are invited to bid on the diamonds, but the company alone can decide the value and amount of diamonds sold to the Sightholders, with no negotiation accepted. The Sightholders have to abide by the cartel’s rigid regulations, which forbid them from selling to retailers who lower prices and can only accept or reject offers from the company. In addition, they have to disclose their market and inventory to De Beers and must be open for surprise audits.
To sum it up, buyers are essentially powerless at Sights. This system allows them to edge out the competition in the market. If prices of diamonds rise, they limit the supply thus increasing value, and later on sell the hoarded diamonds at inflated prices to make astounding profits. When new suppliers enter the market, the market is flooded with diamonds similar to those of the new supplier, thus lowering their value. This ultimately either causes the competition to drop out or to be absorbed as a Sightholder at the auctions.
A history of crime:
The group has faced charges by the US Dept. of Justice who accused De Beers of fixing prices of industrial diamonds in 1994, and ruled that any De Beers employees entering the US were to be arrested. Finally, after à $10 million fine, they were allowed to operate directly in the US. However, arguably more grave is the issue of blood diamonds, or conflict-diamonds, which are diamonds mined in areas of conflict that are used to fuel the conflicts. After the UN’s Kimberly Process was declared, De Beers, who were the major perpetrators in the conflict-diamond trade, stopped all outside purchases of diamonds, to ensure sales of conflict-free diamonds only.
Fall of the giants:
In the 90s, the world changed and De Beers struggled to adapt. With the new discovery of mines in Canada, the withdrawal of the Argyle mine in Australia, and the synthetic diamond craze, De Beers faced stiff competition, and their market share fell to 65%. The De Beers monopoly was incredibly successful, but with new entrants, the monopoly shrunk to à fraction of what it was. Yet, the group still makes billions in profit, after their partnership with luxury goods company LVMH from 2004.
Today, De Beers focuses more on marketing and branding of their jewels and diamonds, but by no means have they let go of their iron grip on the diamond industry. Their control over the market has kept the industry one of the most stable industries economically and all signs point to their continued reign in the future too.
Research Coordinator - Aurimita Dutta Chowdhury
Editor - Vaishnavi Bhojane