Diamond Industry

Diamond Industry

"1946 World War II was over and America was rebounding, regrouping, and finding itself feeling strong and focused". It was at this time that the diamond was looked at more as a way to grind materials, cut glass or sharpen a blade. Diamonds had not yet made it to the mainstream of the jewelry industry. IT was also at this time that the value of the diamond decreased while the supply do it increased. In 1946 the diamond supply was around 5.3 million at a worth of three to four dollars a carrot, yet by 1950 with an increase of supply up to more than 12 million, the worth had dropped to only about fifty cents per carat. With this amount, 55 million were for the industrial trade. This means that half of the diamonds mined were for jewelry and the other half was meant for grinding and cutting and things of that nature (http://www.landssuperabrasives.com/evolution.pdf).

Gem diamonds make up only 18 percent of world production by weight but account for 66 percent by value. Alluvial diamond deposits typically have high gem content, of 80 per cent or above (Hong Kong Development). Approximately 75 per cent of the world's annual production of rough diamonds is marketed through the De Beers-controlled Diamond Trading Company (DTC) which markets all De Beers production as well as production bought from other mines both on long term contracts and on the open market. The DTC aims to preserve an orderly market for diamonds and in the past has managed diamond prices by controlling supply in times of over production or economic recession. As a result, the diamond market has been less prone to the cyclical price fluctuations typical of many commodities. Rough diamond prices increased at an average annual rate of approximately 5 per cent between 1985 and 2000, and substantially outperformed oil, gold and the Economist commodity price index over that period.

Due to the fact the diamond was now the new favorite for the "industrial industries" new mining techniques were developed, new mines were found and opened, and also, synthetic diamonds began to make a start on the scene as well. By the time that the world had reached 1966, the diamond industry had reached a phenomenal number, triple that of only a few years earlier, up to over 38 million carets. With this number the production of the synthetic diamonds were around the same amount. Until doing the research for this project I had no idea that the diamond industry was so large, and even less of a clue that the industrial diamond would be half of the industry. To put this into perspective for us lay people: In 1997 the diamond reached record levels production with the amount of 107 million carets of diamonds mined throughout the world.

Independent producers now supply about 40% of the world's rough diamonds, quite a change from the days when De Beers strictly controlled supplies through its so-called single-channel pipeline. Israel, the largest buyer of rough diamonds, hopes to control much of the new material from Canada, Indonesia, Finland, Russia, South America and Namibia. As long as consumers feel secure about diamond's value, demand will be strong, said trade experts. De Beers spends $200 million annually to promote diamonds and has seen demand grow 150% in the past 15 years. "The diamond dream is alive and well in America," said Stephen Lussier, director of the De Beers' Consumer Marketing Division. De Beers also is developing a "powerful marketing program" for the millennium, he said. As long as consumers feel secure about diamond's value, demand will be strong, said trade experts. De Beers spends $200 million annually to promote diamonds and has seen demand grow 150% in the past 15 years. "The diamond dream is alive and well in America," said Stephen Lussier, director of the De Beers' Consumer Marketing Division. De Beers also is developing a "powerful marketing program" for the millennium, he said (Robert Weldon).

When talking about the diamond industry in specifics, there are four actual categories to talk about. These categories would be mine production, rough diamond distribution, preparation and cutting, and finally, retail markets. Most of these markets are controlled by the DeBeers Diamond Company. They have maintained control of the diamond industry through several different avenues. For example, DeBeers controls forty-six percent of the mine production and about eighty-five percent of the rough diamond distribution. DeBeers has such a control over the diamond industry that "since the 1960s, De Beers has been subject to antitrust charges, led by the U.S. Justice Department that it has chosen not to answer in court. As a result, it is prohibited from conducting business in the United States, ironically the largest retail market for the end

Products it helps to create." The DeBeers Company has also been labeled a "monopoly", the likes of which has been outlawed in this country. . "The De Beers

Strategy, by U.S. law, is illegal. In 1945, the Justice Department initiated antitrust proceedings in New York against diamond cartel members. In 1994, the company was charged with colluding with the General Electric Company to raise prices. As a result, DeBeers cannot directly deal with its largest market. Also, in Europe there is widespread speculation that the company will be a future target of EU antitrust commissioner Mario Monti in his efforts to break up dominant companies."(the global diamond industry)

As discussed earlier, the diamond mining industry has grown dramatically over the past fifty years. Respectively the values produced from the diamond industry are divided up among the three groups. Even though about fifty percent of the diamonds mined are for industrial purposes, about "83 percent of the value of rough diamonds produced, this report focuses on the value chain for Jewelry and Investment Diamonds, a chain that starts in diamond mines and results in a cut gemstone sold to a retail purchaser or an investor."

The mechanics of the rough diamond distribution chain are unique to the diamond industry and are the key mechanism used by De Beers to maintain its control over the supply of rough diamonds. Some of these techniques would be as follows: Members of the cartel commit to selling rough diamonds only to dealers of rough gems controlled by the De Beers group. Following this the rough diamonds are sorted by De Beers into 5000 categories and divided into Ð''boxes.', the prices of these Ð''boxes' are preset by De Beers in advance. With