Editor’s Note
The diamond industry faces a pivotal shift as De Beers steps back from its historic role as market regulator. This move, driven by commercial priorities, may destabilize pricing structures and flood the market with lower-grade stones. The long-term implications for traders, retailers, and consumers remain uncertain.
The global diamond market is facing a crisis in its trading practices as De Beers of South Africa, the industry leader, has declared it will resign from its role as the “market police.” This announcement, aimed more at increasing profits than market stability, is expected to lead to a price collapse for mid- to low-grade diamonds due to oversupply.
De Beers is the world’s largest diamond mining company, currently controlling 40% of the world’s rough diamond supply and two-thirds of its distribution. It was founded in 1888 by British colonial politician Cecil Rhodes with financial backing from the Rothschild family. After World War I, the German Oppenheimer family joined its management, and by the 1930s, it had brought the diamond syndicate under its control, evolving into the Central Selling Organisation (CSO). It is also a multinational corporation with offices and related companies in major countries responsible for market research. Since the 1930s, De Beers has regulated diamond supply and demand through a system of “sights” (sales meetings).
However, in July, De Beers announced at its CSO headquarters in London:
The company’s Chairman, Oppenheimer, added:
The background for relinquishing this absolute power is analyzed in three main points:
1. The increase in rough diamond supply has reached a point where De Beers alone can no longer effectively regulate it. Massive diamond mines discovered in Canada, Australia, and elsewhere have caused annual production to surge from 15 million carats in the 1950s to 100 million carats in the 1990s. Furthermore, new mining operations are bypassing De Beers to establish their own direct sales networks.
2. The decline in De Beers’ stock price is a key factor, largely attributed to its $4.8 billion inventory of rough diamonds. Consequently, the company has chosen to abandon its traditional supply control function and prioritize reducing its own diamond stockpile to stabilize its share price.
3. With sustained strong demand for diamonds in the US during a prolonged economic boom, the company judged that bulk sales are more advantageous than supply regulation.
With De Beers, which has guaranteed the diamond market’s distribution order regarding price and sales volume, shifting to “bulk sales,” fundamental changes, especially in pricing, are anticipated. While high-quality diamonds are expected to see price increases, lower-quality and smaller diamonds are likely to experience price declines due to oversupply, leading to a polarization in the diamond market. However, De Beers appears less concerned about such market disruption and plans to pour $170 million into global advertising this year.