We began a discussion through our post here (published on 10/11/2015) whether the natural diamonds are really rare or its scarcity is created by cartel of mining companies? Here is the URL for those who may have missed the article http://www.jewellerynetasia.com/en-us/editorial/Blogs/555/6457/are-the-natural-diamonds-really-rare
Miners don’t dictate terms now
We tried to contact the heads of some mining companies including De Beers but we did not get any feedback from them on the above question. But some leaders assertively responded to our queries. Let’s see what they feel about it.
Are natural diamonds really rare or its production exceeds today's demand?
President of Moscow Diamond Bourse and Chairman of the World Diamond Mark Mr. Alex Popov says, “Indeed the production today exceeds demand for certain categories of diamonds. On the other hand, some sizes and colors are very rare and their prices go up constantly. One has only to look on the recent auction results. The industry faces two choices - to increase demand with clever generic promotion, or to close manufacturing of unprofitable items. Most probably we should do both.”
Responding to this question, Vice President of the Panama Diamond Exchange (PDE) Ms. Ali Pastorini says, “I too, read the recent reports of the John Hopkins University study that diamond formation in the very deep Earth may be a more common process than earlier was thought. But what the study never suggested was that there may more viable deposits of gem-quality diamonds than we earlier would have expected.”
“The John Hopkins study spoke of geological processes taking place 150 to 200 kilometers below the Earth's surface, whereas the deepest drilling exploration ever made was less than 14 kilometers below the surface, and diamond mines are typically not much more than half a kilometer deep.”
“In fact, all reliable research shows that the rate of growth in the supply of natural diamonds is lower that the growth in consumer demand for diamond jewelry. Bain & Co. earlier forecast that demand for polished diamonds will expand by 6.4 percent in terms of value annually over the next decade, with rough diamond supply only growing at a compound annual rate of 2.0 percent globally, and possibly plateauing after 2020.”
“And just this past September, Goldman Sachs released a report in which it stated that, from 2017, it expects to a see an acceleration of the trend of demand outstripping supply. This, Goldman Sachs said, will be underpinned by the completion of mining projects currently under development, after which there will no significant increment in supply in the absence of new large-scale deposit discoveries.”
“And, even if there is a significant diamond find, let us not forget that it takes about eight years from the time that a deposit is discovered to the point that it comes on line.”
Independent gems & jewellery consultant since more than a decade and Quality Assurance Inspector at Zale Corporation since last 9 years, Mr. Sunil Shukla says, “Rough Diamonds are not rare but it's production is controlled by mining companies so that polished diamonds can be sold at good rate and they can get good returns on that.”
We further asked them: Is there any cartel of diamond mining companies, which has been creating artificial scarcity of rough by controlling its supply?
Mr. Popov says, “No, there's no cartel whatsoever. Diamond companies are controlled by shareholders who demand return on investment. This in turn makes any cartel unmanageable as the producers have conflicting interests. In a way we see the example of this competition in the recent price reductions.”
Ms. Pastorini comments, “While historically De Beers openly controlled rough diamond supply for close to century, it deliberately relinquished that position starting in the year 2000. It remains one of the larger suppliers to this very day, but in 2015 is unlikely to even be the largest, since it will produce less than Alrosa, both in terms of carats and U.S. dollars. And there are other powerful suppliers out there, like Rio Tinto, Dominion, SODIAM, Petra and others.”
“But not only does the entry of a more players into the rough diamond market preclude the potential of a cartel controlling supply and prices, so does the way in which diamonds are sold. The days in which De Beers or others can oblige the clients to buy exactly what they are offered are long gone. As we have seen just over the past several months, diamond trading and manufacturing companies are prepared leave goods lying on the table. Once upon a time that simply would not have happened.”
“Rough diamonds increasingly are sold on tender, where the market dictates demand and prices. This, too, suggests that there are no cartels at work,” she adds.
Mr. Shukla observes, “There are mining companies (Rio Tinto, Alrosa , De Beers etc.) and they do mining of diamonds and later they are auctioned. But as the demand of polished is less due to many stimulants, diamond manufacturers have reduced polishing rough Diamonds to get the demand of existing stock. So I can say situation right now is reverse.”
The situation may have changed now, as they rightly say so that gone are those days when miners used to dictate their terms.