State of the Union

(The Future of Diamonds)

As I have written recently the diamond industry is going through a dramatic evolution.  
  • Diamond production is declining for the first time in over 25 years.  
  • Last year, DeBeers, shut down their last three underground mines.  
  • Of 170 diamond companies globally, only 25 are actually producing.  
  • Diamond inventories held by DeBeers and other mining companies that totaled over $22 billion US just a few years ago are down to three to four billion.
  • In 2005, Rio Tintos’ Argyle mine in Western Australia’s Kimberly region, the world’s largest left $10 billion US of demand unfulfilled. Quite simply, one out of every three orders for a diamond is not filled— and it’s going to get worse. By 2015 Canada’s Ekati mine (run by BHP Billiton) is predicted depleted; Rio’s Diavik mine in Canada is next and the world’s largest, the Argyle mine will be exhausted in the next decade even with a billion dollar overhaul.

Botswana which produces one out of every four gem quality diamonds can’t be expected to carry the load even though they have upped their production by 17% in the last year. With booming economies in China and India, the world demand for diamonds is at a “tipping point.” In only the last five years China has doubled their jewelry purchases. SOLD OUT is going to be a familiar phrase the public is going to have to deal with when they go looking for a non-commercial, gem quality diamond. Of the average 114 million carats sold each year, only 2.28 million (that’s 2%) are non-commercial. Non- commercial is defined as a diamond that is 100% natural, white, eye clean, well proportioned and fully bondable. In the U.S. alone, 49 out of 50 diamonds sold in 2005 did not meet these criteria. To make matters worse, “Brick and Mortar” stores and online consolidators are taking advantage of the shortages by offering “Cert pretty” diamonds (these are diamonds that have lab grading reports by labs that guarantee nothing and appear to be attractive but are actually only commercial grade “seconds”). Making matters worse for the public are the bribery scandals at the labs; making it increasingly difficult for the consumer to purchase the real thing vs. a bluff diamond.

Besides the sentimental attraction to a diamond there has to be an actual dollar value or the whole industry will implode and the diamond engagement ring may become a thing of the past like $.99 a gallon of gas. The new reality says world-renowned geologist Dr. Charles Fibke is that diamonds could double in value by 2010.

Solution

Since diamonds were discovered over 2000 years ago in India, the world has produced over 380 tons of diamonds. These diamonds haven’t left the planet; they lie dormant in the private sector and represent the largest stockpile of diamonds that could be harvested again. If the diamond tradition is going to continue to work, the public is going to have to allow diamond companies access to these gems and the public will have to understand a “used” diamond is better than no diamond at all. While this may be the last generation to own a diamond cut to order, it doesn’t have to be the last to possess one. Patek Phillip Watch Company says that nobody truly owns one of their watches that they just hold on to it for the next generation. If we can adopt the same philosophy with diamonds, we’ll be alright.

by Fred Cuellar, author of the best-selling book “How to Buy a Diamond.” More questions? Ask the Diamond Guy®