For most of the twentieth century, the diamond market was entirely controlled by one company: De Beers. Total control of the industry meant that De Beers set diamond prices. This monopoly no longer exists, and today diamond prices are driven by supply and demand.
In the late 1800s, during the diamond rush in South Africa, Cecil Rhodes accumulated as many mining properties as possible and created the De Beers Consolidated Mines Limited. Since the diamond industry was relatively small, the company was able to control every aspect of the industry, especially focusing on distribution.
It was under Ernest Oppenheimer that De Beers and its Central Selling Organization signed exclusive agreements with suppliers, structuring the entire industry in its favor. For more information on the history of De Beers, see our article.
Once De Beers had control of global supply, it could keep prices stable by stockholding rough diamonds during a weak market and then releasing them once demand increased.
As new mines opened in Russia, Australia, and Canada, it became more difficult for De Beers and its distribution channel, Diamond Trading Company (DTC), to maintain its control of global supply. While Russia started producing diamonds in the 1950s, the Russians initially played along and sold only to De Beers. Later, after the fall of the Soviet Union, De Beers would no longer be the sole distributer for Russian diamonds.
One by one, diamond mines in Australia, notably the Argyle Mine, and in Canada would break away from the De Beers cartel, bypassing the DTC. De Beers saw its market share fall from a peak of 90% in the 1980s to 60% by the late 1990s.
In the early 2000s the company changed strategies by promoting its own retail stores and brand name rather than focusing on rough diamond supply control. In 2005 De Beers promised the European Commission it would decrease and eventually phase out the purchase of rough diamonds from the Russian company Alrosa. Later that year, the company sold its stockpiles, subjecting diamonds to real market forces (supply and demand). In 2011 De Beers sold a majority ownership to Anglo American.
Today the diamond industry is dominated by two major players, Alrosa and De Beers.
For more information about the De Beers monopoly and the current structure of the Diamond industry, see Paul Zimnisky’s article.