Why has the price of diamonds risen since February 2011

For a start, supply is tight. All the world’s big deposits are thought to have been discovered already. Older mines are mined out with diamond yields falling off and total annual output will further diminish over the next few years. At the same time, demand is soaring in China, India and the Gulf, where ostentatious adornment is in demand. It is estimated that by 2015 these countries could be buying as many diamonds as that sold to the United States, where the demand is also on the upswing and currently accounts for two-fifths of global sales. As a result, diamond prices have risen by over 50% in 2011.
DeBeers, however, is no longer the diamond heavyweight it once was. In the 1990s DeBeers mined half of the world diamonds and controlled eighty percent of world sales. But then the consumer came to know about “blood diamonds” and how sales of these diamonds financed civil war in certain African countries. Tracing the provenance of a diamond is not that straight forward and near impossible to do. So, to avoid the risk of bad publicity, DeBeers decided to market only those diamonds it mined itself.
As a result of this decision, DeBeers market share tumbled and today it produces only thirty five percent of the world’s diamonds by volume and has a lot more competition. Alrosa, the Russian state-backed diamond mining company, now rivals DeBeers. Anglo American a major player in the mining game, is a large company, who today own eighty-five percent of DeBeers due to a recent deal finalized on November 4th, where they acquired forty percent of the shares owned by the Oppenheimer family for $5.1 billion dollars. Anglo American however, will have to compete for new mines with other giants, such as BHP Billiton and Rio Tinto, which between them mine seventeen percent of the world’s diamonds. Ambitious smaller mining companies, such as South Africa’s Petra Diamonds, are also looking to claim a piece of the pie. This doesn’t bode well for Anglo American as they are a company that has most of its experience based in general mining, and may find it hard to negotiate prices with the canny and highly knowledgeable dealers who are the buyers of rough diamonds.
At the same time governments, who typically control mineral rights, are driving ever-harder bargains. Botswana for example, pockets around eighty percent of the profits from its joint venture with DeBeers, which yields a whopping two-thirds of DeBeers diamonds. More competition means DeBeers can no longer control prices the way it used to by strategically buying when markets are weak and selling when they strengthen. It could be that the Oppenheimer family decided that DeBeers was past its prime and opted sell their shares at the top of the market while they still retained their value. The diamond business of today is far different to that which existed thirty years ago. Today there are several countries competing with DeBeers selling diamonds where the governments are stable and do not wish to join the DeBeers cartel. Diamonds are still the first choice of the bridal industry and no matter what price diamonds truly are forever and always in demand.