Tags: Diamond | Macro | Pricing | 21st Century

Diamond Macro Pricing in the 21st Century

Diamond Macro Pricing in the 21st Century
(AP/Seth Wenig)

By    |   Wednesday, 08 March 2017 12:55 PM

Perhaps the biggest question on jewel bugs’ minds is “How are diamonds priced?”

The answer today is very different to what it would have been in the prior century.

Many people are familiar with the name DeBeers. For much of the 20th century DeBeers was considered a monopoly or cartel. They mined diamonds, and what they did not mine was sold through them.

In weak economic times, DeBeers stockpiled diamonds to maintain pricing. In good times, they sold down the stockpile. DeBeers also advertised diamonds generically to stimulate overall demand.

Yet by the end of the 20th century, this monopoly worked neither for DeBeers nor the countries where DeBeers operated.

The first country to break away were the independent Australians who decided to market their diamonds themselves, and were quite successful.

After that Russia — probably the second largest diamond producer after Botswana — kept raising prices on DeBeers, with the implicit threat that if DeBeers did not pay, Russia would sell on its own.

Then there were new anti-monopoly EU rules. DeBeers being a U.K. company was faced with being unwelcome in its home, still barred from the U.S. and paying above-market prices to Russia.

Countries in Africa where DeBeers had mines also questioned the 10% cost DeBeers deducted to advertise and market diamonds generically.

A simple back-of-the-envelope calculation showed DeBeers that instead of subsidizing purchases to keep Russia and other producers selling through them, they would be better off with a smaller market share and keeping their own profit.

Perhaps one of the most important factors was also the realization that far from needing to stockpile diamonds, global growth and demand was rising at a far faster pace than possible diamond mine production.

A few other factors swayed DeBeers decision to dissolve its monopoly. They would become globally compliant in world where it would not be possible to operate otherwise, DeBeers would no longer be a pariah in the United States, which was then and remains the largest diamond market.

Entering the 21st century, DeBeers then gave up its control of the market and reduced itself to about 30% of global diamond supply.

About 3 years ago McKinsey’s studied diamond-mine output. Their conclusions are worth noting. It takes at least 10 years, if not more, to bring a significant diamond mine to production.

Existing mines are slowly depleting in that ore grades are dropping and costs rising.

The study shows that we are at peak production entering a period of slow decline while global wealth increases leading to increasing diamond engagements.

Today diamond prices then are purely a function of supply and demand, and prices have on many fine grades risen on average 5 percent for the past decade.

Sean Cohen is the president of Van Zwam, the home of Defined Value Diamonds (DVDs), an easy to understand, simple and effective diamond investment program. He is the former president and co-founder of, NHC LLC and BWHC LLC a series of joint ventures with Tiffany & Company, President of Rand Diamond, VanZwam LLC, SSC Management, and past President of the International Diamond Manufacturers Association.

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Diamond prices then are purely a function of supply and demand, and prices have on many fine grades risen on average 5 percent for the past decade.
Diamond, Macro, Pricing, 21st Century
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2017-55-08
Wednesday, 08 March 2017 12:55 PM
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