Shortly after losing control of Russian supply, the Argyle Mine in Australia, at the time the largest diamond producing mine in the world by volume, broke away from the DeBeers supply chain. Over the next few years, other mines followed suit, as new world-class mines in Canada sold supply independent of De Beers.
The emergence of new supply distributed outside of CSO meant that De Beers, was forced to hold back from selling large portions of its own inventory and to purchase excess supply from its new competitors in the open market, in an effort to maintain control of the market. By the end of the 1990s, De Beers’s market share had fallen from as high as 90% in the 1980s to less than 60%. De Beers no longer had control of the market in 2000, when the company announced a shift in strategic initiative to focus on independent marketing and branding, rather than generic diamond price control.
However, the monopoly officially ended in 2001, when several lawsuits were filed in U.S. courts alleging that De Beers “unlawfully monopolized the supply of diamonds, conspired to fix, raise, and control diamond prices, and issued false and misleading advertising.” After multiple appeals, in 2012 the U.S. Supreme Court denied final petition for review, and a settlement in the amount of $295 million with an agreement to “refrain from engaging in certain conduct that violates federal and state antitrust laws” was approved.
Source: WWW International Diamond Consultants Ltd, Gem Certification & Assurance Lab, Price Scope, and Authors analysis. Price constitutes various qualities of rough and polished diamonds, and shows diamond price deviation from starting basis of 100 beginning in 1987.
The way De Beers did business, which revolved around the central concept of controlling supply in the market, was simply not viable in a more competitive environment, and De Beers could not maintain the monopoly. From 2000 to 2004 diamond prices modestly declined, as the De Beers stockpile was liquidated into new demand coming out of Asia. By 2005, the inventory overhang had been lifted allowing market forces to drive diamond prices for the first time in a century, resulting in unprecedented price volatility. Diamond prices made a new high in 2007, followed by a violent sell off in 2008 and 2009 before rebounding to another new high in the summer of 2011.
With a market share of less than 40%, in 2011 the Oppenheimer family announced a complete exit from De Beers, ending almost a century-long ownership of perhaps the greatest monopoly in history.
About the Author
Paul Zimnisky has worked in the financial industry for almost 10 years, primarily as a buy-side equity analyst focused on the metals and mining space, and as an ETF arbitrage trader. Paul currently creates and develops new exchange-traded products. Paul has appeared on national television programs and has contributed to and been quoted in numerous mining and investment publications. Paul has a B.S. in Finance from the University of Maryland, College Park. Paul can be reached at paulzimnisky@gmail.com.