When Stephen Lussier, head of marketing at De Beers, visited China in 1989 to see if this could be the new market for diamond jewellery, he found it a depressing experience.
”There were no shops selling diamond jewellery. When I talked to people they had some vague knowledge of American film stars wearing diamonds. I left thinking it was going to be a long haul,” he says.
Fifteen years on, the Chinese diamond market has changed. In Shanghai and Beijing, eight out of 10 brides now receive a diamond ring. No other market has developed this quickly — it took 50 years for the United States to get to this level and 20 years for Japan.
It is not only China that has become wealthier in recent years — so has India — but the market dynamics are different.
The challenge for De Beers was to persuade the Indians to buy diamonds along with their gold and to expand their market. India has replaced Antwerp as the place where the majority of the world’s diamonds are cut. Nine out of 10 stones are now cut in India.
By the end of the 1990s, De Beers realised it had to alter its strategy to improve sales. The company previously controlled 70% to 80% of the rough diamond market but this had dwindled to 55% as more players entered the industry. For example, the Russians started marketing more of their own product and Rio Tinto opened the huge Argyll diamond mine in Australia.
De Beers had been the buyer of last resort. Rather than lowering the price of diamonds to shift stock when times were tough, De Beers would hold on to it until demand increased again. But this strategy was costing the company money .
De Beers is in an unusual position. Although the company mines diamonds, it does not cut the stones or design and sell jewellery. It needs to create demand among customers for diamond jewellery that the makers can provide.
The jewellery market is highly fragmented. The middle of the market — the providers of cut stones to the jewellery stores, who are known as sight holders — is much more consolidated. So De Beers works with the sight holders to create a concept that the jewellery makers will then design and sell.
The effort to boost global sales has paid off: over the past five years, sales of diamonds have grown by 5%, compared with only 0,2% for the previous five years.
De Beers’s new policy of not holding large stocks of uncut stones, along with the demand for diamonds from India and China, has resulted in a growing shortage of stones. Miners are now looking to increase the supply.
It is not only De Beers that is keen to mine more diamonds. Last year Rio Tinto, the world’s second- largest mining company, spent around 25% of its exploration budget on diamond prospecting. Keith Johnson, Rio Tinto’s chief executive of diamonds, says: ”If I were to write a list of everything I would want from a new mining venture, then diamonds have it all.”
The list includes a commodity with steady demand and prices, which can be mined in a cost-effective way for decades.
The hot new territory to look for diamonds is the North West Territories (NWT) in Canada. Rio owns 60% of the new Diavik mine in the NWT, which started two years ago. It is producing 8-million carats a year and profit margins run at over 80%.
De Beers has spent $500-million developing the Snap Lake mine, in the NWT, which is expected to open in 2008. Despite new mines coming on stream, both De Beers and Rio Tinto are confident that demand will remain high as Asia continues to industrialise and wealth grows in countries like Russia and Turkey.
At the moment the United States accounts for 50% of the world market. China currently accounts for only 4%.
”In 25 years time, China will be the biggest market. We’ve seen that as incomes go up, the diamonds just get bigger,” says Lussier. — Â