RAPAPORT... I had the opportunity to participate in a meeting with a large sightholder in Belgium some time ago. He raised a very valid point: “Why does our industry press constantly badger De Beers?” His point was that De Beers is a preferential supplier of a natural resource whose market has evolved into an extremely competitive environment, including the likes of Rio Tinto, BHP and others. It seems as though the historical relationship De Beers has had with the diamond markets and the monopolistic role it played in the past deemed it an appropriate target. Today, however, a very different reality is apparent.
With De Beers supplying approximately 45 percent of today’s rough diamonds to market, they remain an influential company, but not the dominant one. As wholesalers and manufacturers naturally look to expand the scope of their business, many are seeking to obtain larger amounts of rough than De Beers can possibly supply. With a given supply divided among a set number of firms, sightholders understand that for them to receive a larger allocation of output, a reduced supply to a third party will need to transpire. While this is not likely to occur, De Beers is said to be narrowing down its number of sightholders, enabling those remaining with the prestigious title to indeed obtain a larger supply.
Policies throughout Africa are also drastically changing as countries possessing natural resources reassess the manner in which their diamonds are allocated. Botswana can be characterized as the most forceful in this regard, ensuring their country’s diamonds are cut locally and their economy derives benefit from the diamonds found on their land. With Botswana’s diamond production representing 27 percent of all global supply in value, it is a force to be reckoned with. As De Beers receives the majority of its supply from Botswana and other African nations, policy changes are sure to have an effect on its dealings.
I feel as though it is almost time to feel sorry for De Beers, who has played a Big Daddy role in our industry for most of the last century. Their famous and wonderfully marketed phrase “A diamond is forever” is a very real concept that not many of those in our trade typically stop to consider. With large quantities of diamonds scattered throughout America and other consumer markets, one can be sure that varying resale markets will begin to appear and play an ever important role in meeting the future demand of the Far East and Indian markets. Consumer confidence issues will also be raised, with Baby Boomers or their children seeking to sell the diamonds and jewelry in their possession. Whether allocating the funds to a grandchild’s education or simply an enjoyable cruise, consumers will be seeking to cash in on their “investment.” As diamonds are indeed forever, they may be continuously traded and resold, an occurrence that is bound to affect De Beers and the entire diamond trade.
So while De Beers remains an attractive target for the relatively few commentators composing our industry press, the company has made positive contributions that should be recognized as well. De Beers has profited immensely from our industry; no one denies that. But it also seems to occasionally put something back, even if only to forward its own interests. One must acknowledge the marketing focus, direction and leadership De Beers has injected into our industry. While traditionally competing against one another, many in this industry have come to understand that we fit into a larger category referred to as “luxury products.” We are competing against Louis Vuitton bags and Mercedes Benz convertibles for consumer dollars, not necessarily each other.
There is no doubt that our industry will appear very different in a few years time. With endless change bound to occur in both the polished and rough diamond markets, the role De Beers will play in the future is yet to be determined. With revenues of $6.15 billion and profit standing at $730 million, De Beers is a relatively small company when considering the vast capital available today in the financial world. I have no intention of badgering this organization, but rather a desire to see how it develops in these ever-changing times and into the future.
Article from the Rapaport Magazine - October 2007. To subscribe click here.