For decades, from Beers, the largest diamond producer in the world, has controlled the industry and the market with iron fist. But its power is falling apart, while the diamond business is going through an unprecedented crisis. The company is losing its select customers: the market popes, family businesses that distribute diamonds worldwide, have rebelled against the market emperor.
De Beers came to control about 90% of the world production of diamonds during much of the twentieth century, accumulating millions of gems in gigantic vaults at its London headquarters. Beers was synonymous with diamonds, and Beers diamonds. The company is heiress of British imperialism: It was founded in 1888 by Cecil Rhodes, just before becoming prime minister of the British Cape Colony, the current South Africa. The company’s monopoly lasted until a few years ago. In 2004, after ten years of judicial dispute, the USA managed to break its market control. Since then, its participation has decreased, but still represents about a third of the global supply.
Despite this, he continued to control the worldwide price of diamonds with a somewhat archaic system that dates back to past decades. Beers celebrates with select clients ten annual meetings, where hundreds of millions of dollars in unbuilding diamonds change hands in a matter of days, through auctions with lots at fixed prices. Buyers cannot negotiate the price or choose specific stones within the package. The prices unilaterally fix them from Beers and, for many years, the system worked perfectly for both the company and its customers. As buyers explain to BloombergDe Beers guaranteed profit margins of 25%, acting as a “protector” of the market. But the problem arose when the price of diamonds collapsed and the company decided to keep its prices.
The auctions that changed everything
Market deterioration has caused unprecedented frictions among Beers and its main buyers. Last November, during an auction in Botsuana, the company tried to sell raw diamonds with a 25% surcharge compared to the secondary market. Many customers simply refused to buy, according to Bloomberg. The company reacted with a price cut from 10% to 15% in December, but the damage was already done. In addition, it eliminated concessions that allowed buyers to reject certain gems, forcing them to acquire less profitable stones.
Tensions increased when Beers announced its intention to drastically reduce the number of accredited buyers, from 70 to 50. Now, buyers must commit to buy more gems if they want to maintain their status. According to the CEO of Beers, to Cook, the company has taken various measures, such as reducing production, combining sales, offering greater flexibility to buyers and spending massively in natural diamond marketing. The result has been devastating: many of the principles, the leaders of these family houses of diamonds, have stopped attending the auctions. The traditional diamond and Beers trade chain has been broken, it faces an excess of inventory valued at 2,000 million dollars, even after reducing its mining production.
Expiration diamonds
Beers redefined the modern jewelry industry, luxury consumption and became the icon of an era. With the help of Madison Avenue agencies – which appeared in the Mad Men series -, imposed the idea that a diamond was the maximum acquisition that could be made in life, and that a engagement ring had to cost several months of salary . “A diamond is forever “ It was for decades the slogan of the company and almost a popular refrain. The greatest recent blow to De Beers has come from China, the second largest diamond market in the world. The demand has fallen 50% since before the pandemia, which has triggered a domino effect throughout the global supply chain.
Hit in the Great China
Chinese retailers are returning hundreds of millions of dollars in non -selling diamonds, flooding the wholesale market in India. In total, more than 1,000 million dollars in gems have returned to the commercial circuit, which has sunk prices even more. According to Liu Houxiang, consultant of the National Center for China Gems Testing: “People are buying less diamonds because there is economic uncertainty and fear of salary stagnation.” In addition, the impact of social networks has been crucial. The publications that highlight the benefits of synthetic diamonds have caused young consumers to see natural stones as a less attractive option. “The market in China is dead,” says William Lamb, CEO of Lucara Diamond, in Bloomberg. “I don’t see a recovery in the coming years.”
An unstoppable enemy
If the collapse in China is the immediate blow, the true structural challenge of the diamond industry is the rise of diamonds created in the laboratory. Until a decade ago, synthetic diamonds were a scientific curiosity. Today, they represent a significant part of the market. Companies in China and India have perfected technology, allowing creating gems identical to the natives in a matter of weeks and a fraction of the cost. According to Boston Consulting Group, the production of synthetic diamonds has multiplied by ten in six years. Wholesale prices have fallen more than 90%, dangerously approaching the cost of production.
Ironically, Beers’s own own contributed to this revolution. In 2018, he launched Lightbox, his own brand of cheap synthetic diamonds, challenging a historical taboo of the industry. The strategy, however, failed: Chinese competition collapsed prices, and in 2023, De Beers announced that he would abandon the production of synthetic geming gems. Beers’ CEO made a forceful criticism: “A natural diamond is formed for a billion years under the surface of the earth; a synthetic diamond is created in a microwave in China in three weeks.”
The crisis comes at a critical moment for De Beers, since Anglo American seeks to get rid of the business. Although the company still considers that it is an “emblematic asset”, it could become one of its surprise disinversions. Anglo has already announced the sale of his coal business and is in the process of separating his platinum unit. Diamonds are the last step in their restructuring, which implies more cost cuts and the end of inventory accumulation.
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