A Diamond Market No Longer Controlled By De Beers

http://www.kitco.com/ind/Zimnisky/2013-06-06-A-Diamond-Market-No-Longer-Controlled-By-De-Beers.html

by lelf • 12 years ago

130 110 12 years ago

FreeKill• 12 years ago

Interesting, I wonder if this will ultimately lead to a competitive environment where prices decline due to competition? I've read it elsewhere before, but I believe diamonds are only "rare" due to strict control of what comes to market. Will be interesting to see if this affects that strict control.

This is especially interesting considering Tiffiany's earning reports this week which showed a substantial part of their post recessions profits is now in the low end consumer goods.

geon• 12 years ago

only "rare" due to strict control of what comes to market

Not only through market control. Diamonds are sort of rare in themselves too.

rflrob• 12 years ago

Kind of rare, but not enough to justify the sort of price premium they demand, at least according to [citation needed]. Heck, it's probably the same source(a) the Grandparent post is thinking of.

tunap2• 12 years ago

Much less rare since man began producing perfect ones over the last 60 years...

I recall reading a decade ago the only flaw with the man-made gems was that they were, indeed, flawless.

http://en.wikipedia.org/wiki/Synthetic_diamond

rhizome3• 12 years ago

This is especially interesting considering Tiffiany's earning reports this week which showed a substantial part of their post recessions profits is now in the low end consumer goods.

If the correlation holds, we can expect to see a lot more teal at Target.

bradleyjg• 12 years ago

It's a strange many party prisoners dilemma out there, that is so far without a lot of defections. When the primary and secondary markets join together then prices will come down quite a bit. Right now, taking a diamond out of the store cuts its value at least in half.

thruffle• 12 years ago

Or even if for cultural reasons the secondary market remains relatively unimportant, you'd expect prices to fall in the primary by quite a bit. Must say I'm surprised that it hasn't happened already. So far no defections seems like a reasonable guess, though I Googled for 10 seconds and couldn't find any further discussion of that guess.

pizza234• 12 years ago

I personally think that the price of the diamonds is almost exclusively determined by the marketing success.

One very interesting bit in the article somebody's mentioned about De Beers story is that artificial diamonds are already cheaper than natural ones, and virtually undistinguishable. De Beer's response has been to produce machines than can distinguish natural diamonds from artificial ones.

My conclusion is that people who wants diamonds want simply something expensive, as status symbol. They don't want a shiny rock at the most reasonable price, otherwise, it wouldn't be a status symbol anymore.

If prices would fell, the perception of diamonds would change drastically, and I don't think that the industry (cartel or not) is going to allow that.

ridgeguy2• 12 years ago

I agree. Synthetic diamonds are available and generally run about 25% less per carat than an equivalent quality natural stone. This pricing is high in view of the relatively low production costs.

Gemesis and other companies were successful in driving down the cost of capital equipment for making diamonds by the older high pressure, high temperature process. Chemical vapor deposition of high quality diamonds is well established and doesn't cost much at all.

Market pricing for aesthetic applications of diamonds continues to be only loosely related to cost of production. I think this will continue until the Maker movement decides it would be cool to have diamond doorknobs, at which point the price will drop to something more closely related to the cost of arranging sp3 bonds between carbon atoms under metastable conditions - i.e., not much.

edited for a typo

bane10• 12 years ago

My conclusion is that people who wants diamonds want simply something expensive, as status symbol. They don't want a shiny rock at the most reasonable price, otherwise, it wouldn't be a status symbol anymore.

Right, until recently, it's been a hard to fake McGuffin. A small, highly portable thing you can point at to demonstrate wealth (or the appearance of wealth).

frozenport2• 12 years ago

>Historically the diamond industry was structurally flawed -the De Beers monopoly controlled prices.

Nonsense! With no utility, De Beers' monopoly is the only reason why these objects have value.

airblade2• 12 years ago

That's incorrect.

On the gem side, the vast majority of people wearing diamonds would tell you they have utility.

On the industrial side, diamond is a fascinating material with physical properties at the extremes, e.g. hardness, thermal conductivity, electrical conductivity, etc etc. It is vital in many applications where there is simply no other material which could fulfil the physical requirements.

frozenport2• 12 years ago

>people wearing diamonds would tell you they have utility

Fashions change, yet people believe that diamonds have permanent value ('is forever'). In contrast to bullion, this is relatively recent development with little ties to traditional banking practices.

>On the industrial side, diamond is a fascinating material

These can be made on demand, and cutting diamonds cost something like $1 per carat. Nobody is raging against the crystal lattice.

danmaz74• 12 years ago

Diamonds are an incredibly important status symbol, especially for women. That has value.

anakha• 12 years ago

Speaking of which, the linked article from The Atlantic in 1982 discusses why that is the case.

http://www.theatlantic.com/magazine/archive/1982/02/have-you...

rhizome3• 12 years ago

That specific articulation of value is also a recent development:

http://en.wikipedia.org/wiki/Jean_Baudrillard#The_object_val...

zanny• 12 years ago

A completely arbitrary value that only requires a critical mass of women to being valuing some other arbitrary gauge of status as a surrogate. Consider how in the last few years owning Apple products has become its own perverse symbol of status, because Apple played an extremely effective rebranding campaign.

lotsofmangos• 12 years ago

Hang on, De-Beers loses control of the diamond market and then the price goes up? This doesn't look like the market has started being rationally driven by supply and demand, this looks like someone even more nutty than De-Beers has successfully staged a coup.

privong• 12 years ago

It could be because DeBeers had the capability (and motivation) to carefully control and stabilize mining operations to keep supplies relative constant. In the absence of that careful control and mediation, if the supply is prone to wild swings the price would swing. I could envision a scenario in which uncertainty in the market for a desired item (without an alternative product) could result in a higher than average price due to speculation and nervousness about the supply.

sogen3• 12 years ago

Heck, I expected, as I'm sure everyone else, that the chart would show prices going down, not UP!?! As others commented, crazy times for something of such little value...

pyre• 12 years ago

Some of those high prices seem like the result of speculation, or people pouring their money into 'something physical' the same way that market volatility sometimes ends up with a rise in gold prices.

hrktb• 12 years ago

I thought diamonds have little to no resale value, or is there other ways to speculate or use them as a something valuable ?

mikebabineau• 12 years ago

The article attributes the increase in demand to Asia:

"De Beers liquidated their stock pile from 2000 to 2004, resulting in a modest decline in diamond prices as the liquidation supply more than offset new demand coming out of Asia"

Here's an FT article on the subject: http://www.ft.com/intl/cms/s/0/c8b7e3de-cf33-11e0-b6d4-00144...

fragsworth• 12 years ago

It's unclear if the graph is adjusted for inflation. If you consider currency inflation since 1987, and that graph hasn't adjusted for it, diamond prices may have gone down significantly.

maaku• 12 years ago

It isn't always the cartel's goal to drive prices up. In the case of de Beers, they wanted price stability. They went out of their way to avoid increasing prices more than the desired amount at many points in the history of consumer diamonds.

There is no reason to believe that the price of diamonds at the time De Beers lost control was not at approximately what the market could bear, especially now that they have liquidated their supply-controlling stockpile. Growing demand from developing countries and speculative pressures that would not have existed before could certainly account for increasing diamond prices.

bluedevil2k7• 12 years ago

Demand has increased for many reasons - more companies have access to rough diamonds, Asian consumers (especially Chinese middle class) are becoming believers in the "a ring means engagement" marketing campaign, and the general improvement in the world economy has led to an increase.

digitalengineer• 12 years ago

Relevant for those who did not read "Have you ever tried to sell a diamond? (1982)": "The diamond invention—the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem—is a relatively recent development in the history of the diamond trade" http://www.theatlantic.com/magazine/archive/1982/02/have-you...

sogen3• 12 years ago

Uupvoted because of the deep insight about the greatest marketing campaign ever.

larrys• 12 years ago

Some people seem to feel that there is something wrong with marketing that makes you want a product or service.

As many people with an expensive luxury brand can tell you (whether it's a handbag or a car) nice things are often nice way beyond what they really are or what they tangibly provide. (And there is nothing wrong about that..)

Let's call it "the mother test". In other words if you gave a luxury car to your mother and she didn't know it was a Porsche Panamera Turbo how much pleasure would she derive out of it over a Toyota Avalon or a Cadillac CTS (relative to the price differential)?

Put another way if a woman gets a kick out of a Coach handbag how would she feel if the handbag was a very good (licensed) replica of the Coach instead of the real thing?

How many people with expensive Chef's kitchens derive pleasure out of them and actually don't even cook that much? And would rather have a kick ass Chef's oven rather than a GE oven? Just because the marketing has convinced them of value?

My point is simply they are happy spending the money and getting what they are getting and there is nothing wrong or deceptive about that practice.

walterbell• 12 years ago

Followup article(2012), "In 2000, De Beers Consolidated Mining Ltd. decided to rename its mining and raw diamond production branch, Diamond Trading Co., and maintain the De Beers’ name “to sell an exclusive brand of diamonds in soon-to-be-launched trendy De Beers stores”

http://web.archive.org/web/20120923200747/http://www.overtco...

Theodores• 12 years ago

What is not mentioned in this story is the Kimberley Process Certification Scheme that started in 2003. This was as a result of concern about 'conflict diamonds'.

Essentially, if you bought through De Beers then you had a 'conflict free' diamond, with a diamond from anyone else then you were taking your chances. Although the KPCS had noble intentions it also was a means of controlling the market.

Maybe that is why we had concern about 'conflict diamonds' in the first place - De Beers needed a new way of controlling the market and it ties in with a lot of the narrative presented here.

iwwr• 12 years ago

Although the KPCS had noble intentions it also was a means of controlling the market.

De Beers used the film Blood Diamond with DiCaprio as a positive marketing tool (they bought advertising with it -- 'De Beers presents...'). It popularized the notion of 'conflict diamonds' and then they calm the fears of their customers with the certification mechanism. More importantly, it creates legal opening for countries to ban the trade in non-certified diamonds.

judk4• 12 years ago

Are there reliable independent audits of DeBeers conflict-free claims, or are they just lying about it-- another facet of their monopolistic jewel of a business?

Ah, found it: KPCS only covers diamonds traded for weapons, it doesn't cover slave/child labor, environmental abuse, or any other crimes committed during mining for DeBeers diamonds.

http://en.m.wikipedia.org/wiki/Kimberley_Process_Certificati...

ZachPruckowski• 12 years ago

Wait, but most of the competing diamonds are from Canada, Russia, or Australia, right? Wouldn't those be conflict-free more or less automatically? If De Beers tried to set prices at which you could sell certified diamonds, couldn't those competitors make their own certification that the majority of the diamonds would use?

ginko• 12 years ago

Good.

The sooner we can get rid of the diamond lobby the sooner we can use diamond for actually useful applications.

return03• 12 years ago

Aren't we already? Only utility i know is cutting glass.

Danieru• 12 years ago

Diamonds are also useful for cutting stones. Granted this was never much of a problem because one only needs to sprinkle the saw blade with tiny diamond fragments. Your local hardware store should have a shelf of diamond cutting blades.

InclinedPlane• 12 years ago

Diamond is used everywhere in tons of applications. It's especially useful in cutting and drilling of metal and stone. Although contra to the GP's point, industrial diamonds are in a completely separate market from gemstone diamonds and de beers' monopoly doesn't have much effect on that. You can find diamond tipped and coated tools at any local hardware store, for example, at quite reasonable prices.

Tyr42• 12 years ago

There's also some quantum computing applications, but that requires synthetic diamonds doped with some other elements, and in very thin sheets. The energy levels of the electrons around the impurities are the different states it can be in, and can be controlled by lasers.

Panoramix• 12 years ago

In addition to hardness, they have an exceptionally high thermal conductivity.

bane10• 12 years ago

Imagine if you could cover or just replace every fragile piece of anything with diamonds.

Intermernet• 12 years ago

Apart from the thermal properties mentioned already, and other more esoteric uses, they also happen to be really strong, and if we can scale up our manufacturing processes, they should become quite cheap as well.

Imagine all of the applications for a transparent material stronger than steel! We're a way off yet, but it's feasible.

caf2• 12 years ago

http://en.wikipedia.org/wiki/Diamond_anvil_cell

venomsnake2• 12 years ago

Sharpening. Almost anything that requires abrasion benefits awesomely when the abrasive is diamond.

shin_lao• 12 years ago

FYI synthetic diamonds are much better than natural diamonds for that, and a lot cheaper too.

return03• 12 years ago

If they 're not scarce they 're not going to be very valuable as status symbols. It seems like de Beers will take the market to its grave with them.

chulk90• 12 years ago

This is actually very old news...

jds375• 12 years ago

I wonder if the price will ever become so low and diamonds so common for consumers that the 'diamond ring engagement' trend starts to disappear.

erikb• 12 years ago

You can start with engaging with another present that shows something more important to your girl than a simple ring that every other girl has.

bluedevil2k7• 12 years ago

No, prices will not go down. Demand has skyrocketed, see my other post for reasons why.

sandycheeks• 12 years ago

Didn't the RSS James Cook find a bunch of diamonds where the mantle is exposed beneath the Atlantic back in 2007?

I remember following this as an amateur geologist but never heard anything more after the diary entry found here...

http://www.classroomatsea.net/JC007/diary/diary_12-04.html

I assumed this would have a significant effect on the supply since they indicated that they got over 150 carats simply by dragging a bucket across the sea floor.

johnchristopher• 12 years ago

I woulnd't hold my breath too much:

But before that, as the First of April passed into the Second, and then to the Third, our delight turned from scientific wonder, to greed, and finally to suspicion concerning the amazingly prolific haul of gems from the abyss.

bluedevil2k7• 12 years ago

I work at a company that helps companies sell their rough diamonds, so I've seen the seismic shift in the rough diamond market over the last few years. There's a common belief amongst those in our area - "the diamond industry has changed more in the last 5 years than it did in the previous 100". That's probably an understatement.

The decline in market share can't be understated on its effect on the diamond industry - DeBeers market share has gone from 90% to 40% in the past 10 years, and as a result, their pricing power has disappeared.

Before, DeBeers had a take it or leave it price - sight holders essentially had a choice to accept the price DeBeers offered, or basically go out business. Now, any company who wants to buy rough diamonds has the ability. Whereas most people here have commented that the prices of diamonds should decrease, on the contrary, prices have increased. More people have access to the diamonds - demand has exploded.

The decline in market power of DeBeers has been an exciting time in the industry.

If be happy to answer any questions - it's a fascinating industry.

bane10• 12 years ago

Whereas most people here have commented that the prices of diamonds should decrease, on the contrary, prices have increased.

Could that just be an effect of an already conditioned market? If I were to sell diamonds from my own mine, and they were moving at the prices De Beers set on their product, why wouldn't I keep my price high?

bluedevil2k7• 12 years ago

You don't "keep your prices high". Your prices reflect the market price now (whereas they didn't before). Auctions ensure that the market price is found by inviting a significant number of participants.

bluedevil2k7• 12 years ago

Interestingly, it's been theorized that DeBeers actually sold their rough diamonds below their monopoly price - to keep participants happy and not "rock the boat".

joering2• 12 years ago

Mandatory article (that was commented on HN a while ago): http://blog.priceonomics.com/post/45768546804/diamonds-are-b...

chromaton• 12 years ago

This articles mentions current diamond prices and even shows a graph of prices over time. My understanding was that there has not been a real market for diamonds, and thus, nobody was able to show an accurate price.

Where is this price data coming from? Is there now a market where you can buy e.g. diamond futures contracts?

reillyse2• 12 years ago

The whole diamond industry is rotten to the core. Even the process of tearing up the ground to get at diamonds is a total waste of time, effort and the planet. Do a google search for "largest hole in the ground" and you'll see what a large diamond mine looks like. That's before we even start to consider blood diamonds.

Do everyone a favor and if you are considering buying a diamond as an engagement ring, have a chat with your significant other and see how they feel about lab created diamonds. They are cheaper and much higher quality and leave everyone happier all round.

judk4• 12 years ago

Sadly there are too many otherwise wonderful women who suffer from the "diamond dogma" just many suffer from the other great marketing campaigns, such as Christianity.

CalRobert3• 12 years ago

If she suffers from this affliction, you could offer to donate the money to a well-researched charity as it would do more good there than as a status symbol on her finger. Her response may be illuminating.

sergers• 12 years ago

Wass just reading a _new_ article regarding debeers and how majority ownership has changed after near a century of ownership by one family.

Debeers plans to raise costs 5% ever yearn for at least next 10 years to hit profit targets. So they must be doing good if now majority of market undercuts them literally.

balladeer• 12 years ago

The title almost feels like "a world economy no longer controlled by (or, centred around) US or $"

A Diamond Market No Longer Controlled By De Beers

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