The DeBeers virtual reality drama continues...
My apology for taking six months to produce Part Two. You should now have an understanding that diamonds are basically a "controlled substance".
So here, I feel a fast overview of the distribution architecture of the diamond industry, from the mine to the ultimate consumer is probably next in order.
Accounting just for DeBeers, rough diamonds are mined from its several sources in and about South Africa. The uncut diamonds are cleaned and separated, and sent off to the Diamond Trading Company (DTC), a wholly owned subsidiary of DeBeers located in London. There the diamonds are sorted for quality, size and color. DeBeers "allows" an exclusive, hand-picked list of buyers called sightholders; who are invited to London a few times per year, and given the opportunity to purchase "lots". or "boxes" of gem-grade rough diamonds. The prices are set by DeBeers, and a sightholder may either accept or reject the lot they are offered.
These sales represent the first step in a tightly controlled market distribution. The sightholders then distribute the rough to cutters, who fashion diamonds into polished gems. Polished goods are then sold into downstream trading networks called bourses; of which there are currently registered approximately 2 dozen. The bourses sell to wholesalers, and in some cases, retailers; and in substantially smaller lots. From there, diamonds reach the consuming public. That is the simple version, but a good stopping place to avoid an entire book.
Through the years, the DeBeers cartel and its associates have had to respond to economic hiccups, market waves, wars and political fits. They have implemented dozens of strategic maneuvers to maintain supply and price controls. And as I write, DeBeers, DTC (Diamond Trading Co.), WFDB (World Federation of Diamond Bourses) and friends, are finishing up the current season of "Supplier of Choice": the latest "marketectural" structure built to maintain distribution and price control. The diamond industry has again, as usual, produced and starred in its own soap opera. The following is a short-list of recent tweaks and changes:
2003:
DTC continues to alter assortments of rough given to its sightholders, usually accompanied by a price increase In total, six price increases in 2002-2003; some as high as 10%. Sightholders absorbed most increases to preserve price levels downline. Late 2003: DeBeers introduces "Supplier of Choice" concept; many long-time sightholders are out
Early 2004:
Year starts with 3% increase in polished goods; rough prices up7%. June; 5% increase from DeB; downstream to sightholders. Manufacturers can no longer absorb and maintain market price levels. Price increases are passed on to downstream consumers.
[Having recently closed the DPS (the Diamond Promotion Service - the DeBeers-owned promotional / marketing organ); the costs of such elaborate, world-wide advertising having risen quite out of hand; DeB pressures its sightholders to take a larger share of rising marketing costs].
Nearly simultaneously, DeB begins a campaign of "branding" (diamonds are laser inscribed with DeB logo for differentiation in the market). Some ousted sightholders form alliances with the "new" Canadian producers. "Shortages" in larger diamonds emerge.
The venerable synthetic gemstone producer Chatham Co., ( now also well into synthetic diamond production), wants to engage the market. The Israeli diamond exchange moves to ban the sale of synthetics (a possible, emerging threat - to be addressed later).
Late 2004:
Economy in US worries DTC; most producers raise prices 25%; the traders resist. DeB settles the long-running anti-trust suit with US government (ah, the politicians' lust for money), so as to gain access to direct marketing in US.
2005:
Diamond prices become erratic. Larger diamonds are largely unavailable; sellers market ensues. One carat diamond prices flatten. Profit margins across the markets become very thin; market begins to shrink. By mid-year: Sightholder list juggled once again. Brick-and-mortar retailers finally admit that internet diamond sales are real and permanent. Several highly leveraged supplier/wholesalers must "declare a chapter". DeB announces plans to have 150 retail stores in US by 2015.
As well, the litany of participants and avid watchers (suppliers, traders, bankers, retailers and appraisers) appended to the diamond business, will once more (as before) speculate, calculate, analyze, and adjust measures of balance and profitability. Industry pundits are creating scenarios on the future impact the rapidly-advancing technologies of synthetic diamond production will have on the market.
This is turning into a book anyway! Part 3 will appear when I get to it. I have some other projects to conquer first. Comments and questions are welcomed by email. Go to "contact us" on this website. Thanks for reading.
