The Diamond Pipeline

‹ Jewelry Education

Controlling the flow of diamonds

The De Beers name is instantly associated with the line, "A Diamond is Forever." What you may not realize is the role De Beers plays in moving diamonds from the mine to your jewelry box – and in setting the price you pay as a consumer.

De Beers origins

In 1871, two brothers, Johannes Nicolaas and Diederik Arnoldus De Beer, purchased farmland in South Africa where diamonds were being discovered. Unable to stem the escalating tide of intruders in a growing diamond rush, they sold the farm. Within a few years, it became the site of some of the world's most famous and productive diamond mines: the De Beers and Kimberley mines. A young Englishman, Cecil John Rhodes, envisioned the approach the diamond industry should pursue in South Africa. He joined forces with another English entrepreneur, Charles Rudd, to gain control of both mines and merge them, forming De Beers Consolidated Mines Limited in 1888. The discovery of diamonds in South Africa brought a new dimension to the worldwide diamond trade – and created a new challenge in selling the output, which greatly exceeded anything generated before.

Balancing diamond supply and demand

Rhodes' innovation was to sell the total African diamond production through a single channel. Shortly after merging the two mines, a trade depression occurred, leaving a number of diamond merchants with excess stocks. To restore confidence and prevent merchants from liquidating their stocks at very low prices, De Beers instituted a system of coordinated selling. It gave rise to the London Diamond syndicate, comprising ten firms that were allocated a specific quota of the entire De Beers African diamond output. The objective was to perfectly balance supply and demand. Although a series of diamond discoveries throughout Africa subsequently undermined the Syndicate's success, the concept was expanded in the 1930s worldwide by Sir Ernest Oppenheimer, the chairman of De Beers. Oppenheimer secured the agreement of the diamond producing concerns outside De Beers to market their diamonds through a single channel.

From mine to market – the diamond pipeline

Today, De Beers is the world leader in mining, recovery and marketing of loose diamonds. The company is involved in 19 diamond mining operations and produces roughly half of the world's supply of diamonds. The organization operates mines in South Africa, Botswana, Namibia and Tanzania. Additionally, 65 to 70 percent of the world output of rough diamonds is handled or distributed through De Beers. Once the rough diamonds are mined, they are sorted into as many as 5,000 different combinations of size, shape, color and clarity. The diamond rough is then shipped to be sold for cutting and polishing. De Beers offers the rough product at 10 annual "sights" in London, where the diamonds are sold to a select group of diamond manufacturers, known as sight holders. Once polished, the loose diamonds may change hands multiple times before reaching a retail jeweler. In contrast, Shane Co. travels to the world's diamond centers to purchase and hand-select diamonds directly from the cutters. This allows us to control quality and deliver the best value. Each manufacturer (the cutters and polishers) tends to specialize in a particular shape, size or quality of gemstone, which is recognized by De Beers in its allocations to the various centers. The principal diamond cutting centers are in Belgium, Israel, India and the U.S., with Thailand growing in importance.

Monopoly – or market maker?

Essentially, in the modern international market, De Beers performs three key functions:

•  Buys rough diamonds from producers and sells them to diamond cutters and dealers from international cutting centers. •  Continually monitors supply and demand in an effort to maintain stable prices. •  Advertises and promotes diamonds and diamond jewelry.

Because De Beers controls so much of the rough diamond supply to the market and is the only supplier that can offer a wide range of diamonds in a consistent assortment, there is no good alternative to De Beers on the market. However, new business practices that took effect in July 2000 are expected to transform the monopolistic De Beers into a more typical supplier.