The hardest known material in the world, Diamond has been a symbol of wealth in several cultures throughout the world for several decades. The diamond industry which has been fueled by an artificial supply shortage, while surprisingly maintaining relatively stable high prices. However, the onset of the coronavirus pandemic has turned the seemingly stable industry on its head. Especially in India, the diamond polishing hub of the world, the pandemic and the lockdown is estimated to result in a 50% job loss for the industry, which employs almost a million people. The international diamond industry has also seen similar setbacks, with De Beers, the leading firm in the international diamond trade, finally cutting prices for its diamonds.
In order to understand the impact of the pandemic on the diamond market, one must understand the intricacies of the market itself. Humans have assigned a lot of value to diamonds, in the form of jewellery. If it were to be sold for practical purposes only, the price would probably be in the range of 30 dollars. Since the 1800s, diamond has been growing as a symbol of wealth and fame, overtaking ruby and sapphire. A large factor in building this image has been the De Beers Group.
For the longest time, it has been impossible to look at the diamond industry and ignore the name ‘De Beers’. The group is involved in all stages of diamond production, from mining to refinement to retail sale. Owning up to 85% of the world’s diamond mining facilities, De Beers has had a near monopoly in the market since as early as the late 1800s. The rare stone was initially an extremely rare commodity in nature, traded mostly in Brazil and India – found only in the possession of monarchs and aristocrats. With the discovery of diamond mines in South Africa, there was a significant rise in supply. And as we’re all aware, an excess of supply leads to a fall in price. Clearly, not a sound strategy for a product whose demand and value in society is heavily tied to its high price.
The story of De Beers began with Cecil Rhodes, who saw the potential of diamond extraction in South Africa. Due to the nature of diamond mining, wherein small miners group together to share infrastructural resources, Rhodes owned almost all of South Africa’s diamond mines within a few years, and formed De Beers Consolidated Mines Ltd. in 1888. With a new found supply of naturally occurring diamonds, De Beers led the process of creating one of the most prominent examples of a Cartel in the world.
By 1902, De Beers owned 90% of the world’s rough diamond production and extraction. It set up various channels to control the supply of diamonds and maintain its price. Of course, it was joined by other diamond distributors as well, since they shared the common goal of keeping prices high. The vertical integration of the production process gave De Beers complete control over the majority of the world’s known diamond production.
The market share dominance of De Beers does not give us a complete picture of their role in the Diamond Industry. The great depression saw diamond demand and prices drop significantly, which prompted then CEO, Ernest Oppenheimer, undertake a marketing campaign, “A Diamond is Forever”. Celebrities wore large diamonds, they came to be associated with wedding rings, the bigger the diamond, the greater the love. The demand and price began to soar. De Beers used similar tactics to market their product overseas as well, all throughout the 20th century.
Here we see the impact of the marketing campaign in Japan. By emphasizing the diamond ring – marriage link, De Beers made its diamonds a symbol of love.
Although this system of De Beers has been met with a lot of resistance in recent years, with individual distributors refusing to cooperate. By stockpiling diamonds, various smaller entities have created an imbalance in the supply, and hoarded enough to affect the global supply. In recent years, countries like Canada have refused to cooperate with De Beers single supply channel, forcing the company to focus on its own brand and retail stores. However, this has not slowed the company down, as it continues to post profits.
Fast forward to the pandemic, which has created a very unique situation for the industry. Unlike previous shocks to the industry, wherein economic shocks affected the demand, the onset of the pandemic has affected both demand and supply. Due to risks of contracting the virus, and lockdown related restrictions, the production process has taken a significant hit. The case of Surat’s migrant diamond workers is a great example.
Due to lockdown restrictions, diamond polishers in Surat found themselves out of work, with uncertain futures. This forced the migrants to return to their homes and content themselves with agriculture – going from Diamonds to Peanuts. About 80% of the world’s diamonds are polished in Surat. However, as a result of the pandemic, India’s imports of rough diamonds have fallen from $1.5 Billion (in February) to a mere $1 million (in April). Industry workers and miners across the globe have, as a result, attempted to change traditional pricing structure, to get a share of polished diamond sales through tie ups with retail sellers and jewellers.
The demand for diamonds has seen a peculiar trend as well. The demand for high quality diamonds has in fact risen, due to continued interest from investors despite the pandemic. But the overall demand has taken a different route. High quality diamonds prices are actually up by 12% since the beginning of 2020. On the other hand, lower quality stone prices are still depressed. Only a select few possess high quality rough diamonds, leading to lopsided distribution of profits across the industry. For the majority of the industry, sales have taken a significant dip, and the few sales that have occurred have seen a 15 to 30% dip in prices.
In the midst of this debacle, there is scope for changing the industry for the better. Miners and rough diamond distributors are hoping that the restrictions to supply and falling demand, will allow them to secure a portion of the retail price of polished diamonds.
Even industry giants De Beers are feeling the pressure. Hopes that the pandemic would lead people to reassess their life priorities and thus result in more marriages have been squandered by a massive dip of 19% in jewellery sales for the year. One way that De Beers is attempting to combat this is by entering the artificial diamond trade.
The artificial, man made diamond market has seen a steady growth in demand over the years. With severe restrictions on the supply of real diamonds, and plunging demand, man made low cost diamonds might just be the answer for De Beers. They hope to price the imposter stones low enough that they are lucrative and affordable for the pandemic hit common man, while still fetching a profit for De Beers. Along similar lines, De Beers has also recently announced a drop in prices for real diamonds, of 10%, in a bid to drum up some fresh business.
From Surat to Canada, the pandemic has hit the global diamond industry like a truck. Not surprising, that a luxury good is losing demand at a time when the majority of the world is survival mode. The stronghold of Diamond giants, De Beers, on the market has been put to the test as a result. Furthermore, workers in the industry are either leaving due to lack of work, or attempting to leverage the drop in supply to get a larger share of the profits. Man Made diamonds seem to have become a viable source in the midst of falling demand and shortening supply. When the diamond trade will make it out of this slump is yet unclear, but it will definitely not remain the same.
Varun Upamanyu is a third year Undergraduate student from Ashoka University, pursuing a major in Economics & Finance.