Thursday, April 09, 2009

Last Forever? Diamonds: Yes; Diamond Cartels: No


De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other commodities, such as gold, silver, copper, rubber, and grains, fluctuate wildly in response to economic conditions of supply and demand, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression.

The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever — "forever" in the sense that they should never be resold.

From yesterday's Financial Times:

De Beers is facing its first crisis without power to control supply, said Des Kilalea, diamond analyst at RBC Capital Markets, and the strain is showing.

De Beers, the world’s biggest diamond miner, is planning for its turnover to halve this year, it emerged on Wednesday, in the latest sign of how the once-mighty group is struggling to cope with a downturn in an industry it no longer controls.

With diamond prices tumbling by at least 30% over the past year, De Beers has cut production at its mines by 40% year-on-year and mothballed its flagship mines in Botswana. Its two new Canadian mines, whose costs led the company to take on so much debt, lowered production soon after they opened in August.

As the diamond market faces one of its bleakest years in a generation, Christopher LaFemina, an analyst at Barclays Capital concluded that De Beers was “bleeding cash."

12 Comments:

At 4/09/2009 11:36 AM, Blogger QT said...

History of this company is particularly interesting. During WWII, DeBeers continued to supply Germany with industrial diamonds while the U.S. had tremendous difficulty getting industrial diamonds. Ironically, South Africa was one of the allies. As a cartel, DeBeers cannot legally operate in the U.S. since it violates anti-trust.

Nice to hear that they are getting a few curved balls however, don't crack out the champagne too soon. DeBeers did manage to prevent diamond coming out of the Democratic Republic of Congo from affecting the world price of diamonds.

Chances are pretty good that DeBeers will continue to have a strangle hold on the diamond business just as they have with Russia, Austrailia, Canada, Angola, Congo, etc.

sethstorm,

If you want to see strong-arming, do some reading on the diamond trade.

 
At 4/09/2009 11:37 AM, Blogger misterjosh said...

MUAHAHAHAHAHAHAHAH

 
At 4/09/2009 1:52 PM, Blogger ExtremeHobo said...

Its shallow women that give DeBeers all its power. Industrial firms are quickly switching to synthetics, but just try asking a girl to marry you with a synthetic diamond...

 
At 4/09/2009 3:36 PM, Blogger OA said...

ExtremeHobo, you beat me too it. Although I class it at competitive rather than shallow.

I know one guy who had to buy a new engagement ring when his fiancee's best friend got engaged soon afterwards, with a bigger ring.

What's the first thing women do when they're engaged? Show the ring off.

 
At 4/09/2009 3:44 PM, Anonymous Anonymous said...

So, does this mean that I can soon drop the insurance on my wife's ring?

 
At 4/09/2009 5:09 PM, Anonymous Anonymous said...

just try asking a girl to marry you with a synthetic diamond...


Good one.

Hydra

 
At 4/09/2009 5:39 PM, Blogger QT said...

Unfortunately, a diamond is not forever if only it were...the magic lasts until the next jewellry proof of eternal love is required.

DeBeers' marketing has successfully played to the insecurities of women for 70 yrs. Every few years, they come up with a new campaign around a signature "must have" piece of jewellry at iniquitious prices....like the diamond anniversary ring ("Show her you would marry her all over again") or the diamond tennis bracelet. Trust me DeBeers has plans for you and your wallet.

A ring doesn't tell you that someone loves you or that you are good enough. You either believe in yourself or you do not.

There are alternatives to a diamond engagement ring like a sapphire ring or an antique ring which offer unique designs and more reasonable pricing. If the woman you love is vain, chronically insecure, and generally mutton-headed, according to recent DNA research sons inherit their intelligence from their mothers while daughters get their genes for intelligence from both parents. Scary

If all else fails, make sure your honey watches a documentary about the diamond trade and sees all those poor child labourers cutting diamonds in India. Good luck...I'm rooting for you.

 
At 4/10/2009 2:36 AM, Anonymous Anonymous said...

"You never actually own a Patek Philippe.
You merely look after it for the next generation."


Is Big Wristwatch trying to pull the same stunt?

 
At 4/10/2009 8:53 AM, Blogger Gavin said...

Last Forever? Actually that is also No. In a spontaneous process Diamonds will eventually turn to graphite.

 
At 4/10/2009 9:18 AM, Blogger Shakes The Clown said...

I recently read Edward Jay Epstein's book on the same subject. I was curious about the history of the Diamond Cartel. It is aquick and easy read. Well paced.

At one time in WWII the US wanted the Britain to nationalize them and DeBeers considered dumping tons of diamonds into the North Sea.

Diamonds are such a fraud. All they are is carbon, which may be the most abundant thing on earth. They can make flawless man-made diamonds. The only way to tell if a diamond is "real" is if it has flaws. You pay for the imperfection.

Young married couples spends thousands of dollars on these things at a time they can ill afford it. I did it. I offered my wife the money. You should have seen the look on her face. Bad move. It is the worst investment other than Berrnie Madoff known to man.

I am quite sure that DeBeer's is behind the "Blood Diamond" campaign. Don't buy those dirty diamonds! Hollywood has always done the work of the Diamond Cartel.

 
At 4/10/2009 10:00 AM, Blogger QT said...

Shakes the clown,

You've just hit on the perfect CO2 capture...synthetic diamonds...the eco diamond? Just sell one to Angelina Jolie or some other Hollywood airhead and it might work.

Funnily what women don't get is that often the man who buys the biggest diamond isn't doing it for love but using it as a signalling device. The wife is a mere trophy and when she doesn't look like a 10 any more, she is replaced with a newer, younger model that matches the sports car.

 
At 4/11/2009 4:13 PM, Anonymous Anonymous said...

You know what's weird, Marc? The article says that De Beers lost control of the market in the 1990s. And yet, just last year, you were saying they were still a cartel, in spite of numerous commentators telling you your information was out of date.

Which is it?

Do you, and your commentators, really think 40 percent of the market constitutes a monopoly?

 

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