Rough Diamond Industry: Monopoly, Oligopoly or Neither?

- August 18th, 2014

Independent diamond analyst and consultant Paul Zimnisky published a report that outlines which selling entities control global rough diamond supply and what percentage they are in charge of, raising the question of whether the industry is a monopoly, oligopoly or neither.

Independent diamond analyst and consultant Paul Zimnisky published a report that outlines which selling entities control global rough diamond supply and what percentage they are in charge of, raising the question of whether the industry is a monopoly, oligopoly or neither.

He states:

When discussing the presence of a monopoly or oligopoly, seller is the key word, and even though most diamond mines have multiple owners, usually only one entity manages the operations of the mine including diamond sales. This is important to distinguish because the potential for pricing power comes from having a significant enough stake in supply relative to the industry as a whole, thus creating the opportunity for price leverage.

To put this in context, most of De Beers mines are jointly owned by De Beers and the country that they operate in. Technically the mines are owned by subsidiary companies jointly owned by De Beers and the respective government such as: Debwana (De Beers + Botswana) in Botswana; Namdeb (Namibia + De Beers) in Namibia; and De Beers Consolidated Mines (De Beers + Ponahalo Holdings Ltd-Broad Based Black Economic Empowerment) in South Africa.

While the ownership split of these subsidiaries is 50/50, all of the diamonds produced are sold via De Beers’ distribution system DTC, or Diamond Trading Company. De Beers partners (the governments) do have an ownership stake in DTC as well, but the DTC entity has pricing power because holistically it controls the selling of an estimated 35% of global diamond production.

Click here to view the full report on Zimnisky’s website.

Click here to read Diamond Investing News’ recent interview with Zimnisky.

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