Diamond Sales outside Cartel Encourage Diamond Smuggling
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Diamond Sales without Legal Permission Devalue Cartel Agreement

1990: Diamond Sales Are Tight Despite Solid Diamond Supplier – De Beers

August 1997

On first glance, it appears to be the worst of times for the De Beers cartel.

In the last two years, the ranks of Central Selling Organization members have decreased significantly, with defections even coming from the company's home base of Africa. Just recently, the new government in the former Zaire-now the Democratic Republic of Congo-nullified the former regime's contract with De Beers to market diamonds from its MIBA mine. Instead, officials sold MIBA stones to an Antwerp company, effectively ending the company's decade long exclusivity.

(De Beers still buys MIBA stones via auction.)

In nearby Angola, the country's diamond areas are now in the middle of a tug-of-war between the government and rebel UNITA forces, and De Beers executives complain the company's contract is being actively ignored. The news isn't much better in Russia-De Beers canceled its old contract with Russian authorities in January, and even with the recent signing of a new diamond law, analysts say a new one may be a long way off.

Australia's Argyle mine also left the cartel last year, and is currently selling its production of small goods direct to India.

Yet, in spite of all these mines leaving the CSO, the venerable cartel is hardly a sinking ship. In fact, it may be stronger than ever. First half rough sales were a record $2.88 billion, up nearly 5% from the year before-mostly due to a lack of "open market" goods.

And the company's net income for the first half of the year rose 13% to $775 million-less than analysts expected, but a healthy gain nevertheless.

Moreover, higher-quality diamond supplies are tight and there are still only scarce amounts of non-De Beers goods on the market.

How has the company remained the king of the hill despite all the defections?

First and foremost is its formidable stable of African diamond mines, which are either owned directly by De Beers or administered by a government-De Beers partnership.

Analysts estimate these mines account for 40 to 50% of the world's diamond production. They also produce some of the highest-quality gems in the world, and are considered among the industry's best run and most economical.

Moreover, some of the defections have not proved as serious as first feared.

Argyle and MIBA produce mostly smaller goods, which some think De Beers has lost interest in controlling. And while Angola and Russia produce many higher-grade stones, in both cases, outside sales have been negligible due to internal problems.

The Angolan civil war slowed smuggling there while in Russia, an unprecedented delay in issuing export licenses has halted most diamond sales. Russia's mines have also had production problems and its once-feared diamond stockpile is reportedly on the brink of depletion.

Throughout all this, De Beers has remained a solid, dependable supplier of diamonds with a regular client base and inexhaustible market knowledge and intelligence.

Moreover, its financial strength may make it able to withstand any serious defections: Even if Angola and Russia start selling large amount of diamonds outside the cartel-as executives warn may happen in the second half of the year - De Beers can simply "support" the market by buying open market goods.

None of this means that the cartel will always survive its present form, or that its executives will always consider supporting the diamond market economically feasible. The new diamond mine in Canada - which may produce 6% of the world's supply by value - is also a question mark, with majority owner BHP reportedly worried that becoming a member of the cartel will bring them into conflict with U.S. anti-trust laws.

Yet, despite all its problems, De Beers is still where it wants to be- in control. No one knows how long it will last, but it is looking less and less wise to bet against them.

Countries whose mines

hold contracts with the CSO



South Africa

South Africa











(contract on hold)






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