Global Markets for Diamonds – Part 6

• 2.3 Market Structure
  • 2.3.1 Diamond Market Players

2.3 Market Structure

The diamond market is traditionally segmented into three categories. (Chang, 2002) These are as follows:

• Industrial Diamonds - natural and synthetic diamonds which are used in various manufacturing and engineering processes because of their physical properties.
• Jewelry Diamonds - rough diamonds used as gems in jewelry.
• Investment Diamonds - high-quality, chunks of gemstones with special characteristics such as its color and are particularly purchased for the purpose of investment.

The Jewelry and Investment categories constitute the largest market share in terms value. It is about 83 percent of the value of rough diamonds produced globally.

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2.3.1 Diamond Market Players

The global diamond market is led by a few, large companies which are mostly involved in several functions throughout the segments of the global diamond value chain i.e. exploration, production, retailing, etc. (Chang, et. al., 2002) The industry is difficult to categorize according to country because the diamond players expand its operations to various parts of the global value chain in various locations. (Rudnicka, 2010) As such, this paper shall limit the competing diamond companies on the following major players: De Beers, ALROSA, Aber, Leviev, Rio Tinto, and BHP Billiton. As described above, De Beers leads the global diamond market but at present, there are other players who are trying to carve their names in the industry. A few of them focuses mainly on diamond mining and production while others focus on mining and materials works.

1. De Beers - is a South African based holding company. It is the old and the new main driver of the global diamond industry. It is involved in various aspects of the value chain. It leads the global diamond market with its total rough diamond sales of $5.1 billion. (The Global Diamond Industry Report, 2011) This consists of almost 60 percent increase in its rough diamond sales compared to 2009, when it had a devastating 40 percent sales drop due to the global economic recession. De Beers controls about 70 percent of the world's rough diamond supplies, which are sold to 120 manufacturers and dealers at periodic sales known as "sights." (The New York Times, 2006)

Its hold on the uncut diamond market was weakened as competitors like Australia's Ashton Mining, now part of Rio Tinto Group, decided to sell their own stones and new mines were developed in Canada. De Beers' competitive advantage rests on its historical leadership and well established diamond explorations and mining operations all over the world. It is trying to carve out other competitive edge since the diamond industry altered its monopolistic model into a more open and competitive one. (Chang, 2002)

2. ALROSA Company Ltd. - is a Russian diamond monopoly that produces nearly all of the country's diamonds. It also accounts for about ¼ of the global market for rough diamonds. It is mainly owned by the Russian central government and the Republic of Sakha. ALROSA operates mines throughout Russia and Angola. It sells about 50 percent of its rough diamonds in foreign markets. (Yahoo Finance, 2012) ALROSA mainly operates in the following diamond value chain: exploration, mining, and in the marketing and distribution of raw and cut diamonds. The company operates its mines located at Mirny, Udachny, Aikhal, Nyurba and Anabar. These are all located in Eastern Siberia.

ALROSA is also involved in power generation. It generates power through hydroelectric power plants. It is currently involved in constructing a hydroelectric power station on the Chicapa River, Angola. This plant is called HydroChicapa-2. It has also started constructing internal power supply lines for the provincial capital. ALROSA has a distribution agreement with The Diamond Trading Company, the marketing arm of De Beers. However, it has successfully reduced its diamond supplies to De Beers and has initiated its own diamond marketing and selling. It aims to support the Russian government through its diamond sales growth.

3. Aber - is a flourishing Canadian diamond company which operates in the various segments of the global value chain. Specifically, it is involved with diamond production, polishing and diamond jewelry sales. In 2007, Aber has changed its name to Harry Winston Diamond Corporation. ("Aber Diamond Corporation," 2011) This paper refers to its original name since this name has earned its market reputation. The company's sales in 2006 were $505.2 million, with a net income of $89.7 million due to its 31.1 percent growth from the previous year. (SOURCE1) Aber's share in the world diamond production is 2 percent. It gets its main profits from its shares in the Diavik Diamond Mine. Aber has a 40 percent ownership in the Diavik Mine, which is a large producer of diamonds in Canada.

Diavik Diamond Mine produces about 8 million carats since 2004. Through its stakes, Aber controls around 3 percent of the global diamond production in terms of value. (Harry Winston Website, 2010) Aber's subsidiary also sells rough diamonds which it readily supplies to Tiffany Co., another big diamond jewelry retailer. Tiffany has an exclusive suppliership contract with Aber. Cutting and manufacturing companies in Israel, Belgium, India, and the U.S. also source rough diamonds mainly from Aber. It also owns Harry Winston Inc., which is a diamond jewelry retailer. It designs and produces diamonds in Switzerland. Its salons are located all over the glitzy cities worldwide i.e. Beverly Hills, New York, Paris, etc. Harry Winston Inc. accounts for about 40 percent of Aber's revenues. (World Diamond Council, 2007) Aber leverages itself through rough diamonds which it mainly supplies to large retailers. (Harry Winston Website, 2010) It also has a competitive advantage of being involved in diamond manufacturing and retail sales, both of which are the most profitable parts of the global diamond value chain.

4. Leviev - is a Russian company which is also the largest cutter and polisher of diamonds throughout the world. (World Diamond Council, 2007) It operates its own diamond mines and it designs its own in-house jewelry. Leviev is the first and only vertically integrated diamond producer worldwide. It earns between $570 million and $1 billion in diamond polishing and about $1 billion in diamond marketing. Its total turnover is between $2 and 2.5 billion annually. Leviev used to buy rough diamonds from De Beers.

At present, the company provides its own requirements and even sells to other cutters, polishers, and manufacturers of diamonds around the world. It competes with DeBeers and overtakes the major diamond company through its Angola and Russian businesses. ALROSA supplies rough diamonds to Leviev and thus, Leviev is the first company to complete a diamond production without exporting the diamonds for cutting and other processes. It also owns Ruis, a company which is a former diamond cutting partner of ALROSA. It cuts $140 million worth of diamonds annually.

The company has factories in Ukraine, Israel, Namibia, China, Armenia, and South Africa. This market player embodies the process of industrial upgrading. For one, it has ended its relationship with De Beers (as a provider of rough diamonds) and its numerous retailers. It intends to independently explore, mine, cut, polish, designs, and retail its own diamonds. Having a fully integrated supply system, it has a very positive opportunity to increase its market shares.

5. Rio Tinto - is another Australian mining company which explores and mines mineral deposits such as aluminum, copper, iron ore, diamonds & other minerals. It carries its business operations through its product and support groups. Its aluminum product group produces alumina, bauxite, and primary aluminum. These minerals are used in various applications, specifically for construction, electrical materials, medicine, packaging, transportation, and other sectors. (Market Watch Website, 2011) Its Copper product group produces copper, with important by products like gold, molybdenum, nickel, and silver. It has a numerous mix of operations and projects located in Africa, Asia, North and South America, and Australia.

Its Diamond & Minerals product group consists of diamond mining, refining and marketing operations. It operates through its subsidiaries: Rio Tinto Diamonds Ltd. (a global supplier of rough diamonds), Rio Tinto Minerals (engages in borates and talc supply with mines) and Rio Tinto Iron & Titanium Ltd. (produces high grade titanium dioxide). Being a large mining group, it also has an Iron and Iron Ore Product Groups as well as its Exploration and Technology & Innovation Product Group. Rio Tinto has global offices located at Australia, Canada, the United States and the United Kingdom.

6. BHP Billiton - is an Australian diamond mining company. BHP Billiton is the largest world resources company. (The Global Diamond Industry Report, 2011) It is involved in mining other products. Aside from diamonds, it produces aluminum, base metals, coal, iron ore, manganese, petroleum products, and stainless steel. Billiton has also developed a vital and growing copper portfolio. (BHP Billiton Website, 2012) Billiton plays a relatively important role in the diamond industry. It constitutes about 6 percent of world diamond production. Its major cash cow for the diamond industry is its Ekati Pipe in Canada, which Billiton owns by 80 percent.

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Ekati produces about 4 million carats of rough diamonds annually and this is about 3 percent of the world market share of rough diamond production in terms of weight. It constitutes about 6 percent of the world market in terms of value. Most of BHP Billiton's sales are gathered from the Antwerp Exchange Center. Billiton sells both rough and polished diamonds to many manufacturers. The company sells about 10 percent of its rough diamonds to Canadian manufacturers. It sells its polished diamonds through its contract polishing arrangements by its CanadaMark™ and AURIAS ™ brands. BHP Billiton is in a good market position since it has vital subsidiaries performing well for the major company in Australia. However, Billiton needs to expand into direct retail sales in order to retain and increase its market shares in the global diamond business.