While most of the main sources of rough diamonds are located in developing countries, they are processed in highly developed countries. For instance, more than half of the global production of rough, polished and industrial diamond passes through Antwerp, in Belgium. (The Diamond Industry, 2007) The following data show the concentration of the rough diamonds, diamond retailing and manufacturing in the said diamond center:
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Antwerp has established a global commercial platform upon which diamond producers, manufacturers and traders from all parts of the world can transact. It is the world's diamond capital but there are other large centers such as those mentioned above, India, Israel, New York, among others. This industry sector is controlled mainly by one key player, De Beers. It holds a significant proportion of the diamond production and trading. It operates through its four central offices in Johannesburg, South Africa and London, England. (Chang, 2002) Its distribution arms, The Diamond Trade Company, sorts and distributes 45 percent of the global rough diamond supply. It exclusively sells to 93 clients who are called "Sightholders." The remaining 65 percent is sorted and sold in diamond centers like Antwerp and Mumbai.
As shown, production and distribution of diamonds are greatly concentrated in the hand of several major industry players like De Beers. It is also concentrated in traditional diamond trading centers just like Antwerp. UN data show that while key players dominate the rough diamond trading, more than 100 countries around the world participate in rough diamond exporting. Independent sources from Australia, Russia, Canada and some parts of Africa have challenged the industry concentration by various ways. (Chang, 2002)
Diamond imports also blur the actual sources of rough diamonds. For instance, the U.S. Customs allows diamonds to enter the country just like any other commodities. (Yager, 2002) The U.S. is the world's top purchaser of diamonds. It buys almost 80% of the world's diamonds. (Yager, 2002) It is also important to note that mining sector countries are also expanding in the cutting and polishing operations. Examples are Botswana, Namibia, Russia, and South Africa. (Yager, 2002)
Due to the lack of transparency in diamond operations, the illicit diamond trade exists outside the three formal sectors of the industry. This is exemplified by the presence of conflict diamond which consists of roughly 3 to 15 percent of the overall rough diamond trading. This estimate is even disputed by industry experts, claiming that the percentage is larger. Conflict diamonds are illegally traded diamonds whose gains were used in the bloody civil wars in Africa. This term is often interchangeably used with "blood diamonds." (Campbell, 2006) Such diamonds are associated with violence, exploitation of diamond workers, and environmental abuses. These diamonds are normally sold in covert transactions and the money is used to buy weapons for the said war. Hence, conflict diamonds or blood diamonds are used to finance the conflicts in Africa. These are also used for warlords in their terrorist activities and abuses.
The African nations which were considered to be part of this conflict diamond production include Angola, The Democratic Republic of Congo, Liberia, and Sierre Leone. Because of the conflict diamond trade, the actual value of the global diamond industry and the roles of each industry player have become unclear. (Yager, 2002) In recent years, governmental and non-governmental efforts diminished the operations of conflict or blood diamond production. The diamond industry also supported Africa through its stop gap measures in the illicit diamond trading. It instituted a process of certification which will discourage the trading of these blood diamonds. This is called the Kimberley Process. It tracks every cross-border interaction and lessens the volume of conflict diamonds in the market. This certification also enables every segment of the global value chain to be properly documented. (Rudnicka, 2010)
The global diamond industry is highly concentrated in terms of geographical diversification of the resources. About 70 percent of the world's diamonds is located in Africa and Russia while the rest is in Canada and Australia. ALROSA's mining operations are greatly concentrated in Siberia but it also has some smaller operations in Angola and the Archangelsk region of Russia. De Beers mostly operates in Africa, specifically in Botswana and South Africa. Lastly, Rio Tinto operates in Australia, Canada and Zimbabwe. (World Diamond Council, 2007)
The diamond industry is also highly concentrated in terms of market players, which are confined into De Beers and ALROSA. As combined, they account for about 70 percent of the global production of rough diamonds annually. According to the International Diamond Exchange (IDEX) and the Kimberley Process reports, their combined total sales is $12.3 billion. Some industry sources estimated their 2010 gross value of production as ranging from $13 billion to $15 billion. However, this estimate included the contributions of smaller diamond players whose total productions were not clearly accounted for. This included the informal and artisanal producers that operate all over Africa.
By considering the larger estimate, the combined market share of De Beers and ALROSA in terms of value was about 56 to 65 percent. The succeeding big industry players are Rio Tinto and BHP Billiton. As combined, they produce about 15 percent of the diamonds in the global market. Other players, including Petra Diamonds, Harry Winston and a host of smaller and artisanal African miners have the remaining 15 percent (rough estimate) in terms of value. At present, De Beers is on top in overall rough diamond sales while ALROSA leads in diamond production.
The market for industrial diamonds is fundamentally different from the gem diamond counterpart. Industrial diamonds are valued mostly for their strength or hardness and heat conductivity. Unlike the gem diamonds, this sector disregards the gemological characteristics of diamonds such as the 4Cs. This explains why 80% of mined diamonds or an estimated 100 million carats or 20,000 kg produced yearly are not suitable as gemstones. (The Diamond Industry, 2007) They are known as "bort" and are often relegated for industrial purposes. Synthetic diamonds are also included in this sector. About 3 billion carats or 600 metric tons of synthetic diamonds are produced every year for industrial uses. (The Diamond Industry, 2007)
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Industry players such as De Beers, ALROSA, Aber, and Leviev are all solely into diamonds. They are engaged in two important sectors of the industry, namely, mining and rough diamond trading, including jewelry and retail sales. On the other hand, Rio Tinto and BHP Billiton are involved in the general mining industry. Rio Tinto is also part of the mineral industry (industrial minerals) and coal and allied industry. (Rio Tinto Website, 2012) Meanwhile, BHP Billiton is also into industrial metal and minerals industry. (Yahoo Finance, 2012)
The diamond industry is the lifeblood of De Beers. It has a monopoly in the exploration, mining and distribution of diamonds. De Beers accounts for about 40 percent of the global diamond production in terms of value and 45 percent of rough diamond distribution. (Lee, et. al., n.d.) It has about 50 percent of the rough diamonds market sector of the overall diamond industry. ALROSA has an estimated 20 percent share of the diamond industry while BHP Billiton and Rio Tinto each have less than 10 percent.
This makes De Beers more vulnerable in the changes within the industry (across the various segments of the value chain) and the market performances of its competitors. All at the same time, its own market performance is very significant to the whole industry as it constitutes a major part of the global diamond industry. Owning an estimated 40 percent of the rough diamond sector, De Beers can also influence the diamond prices in the segment of diamond sales to large manufacturers. De Beers also captures more than 50 percent of the U.S. diamond market and this is a very strong position. Having been reputed with the highest quality of diamonds is also very advantageous for De Beers. Hence, the industry is very important to De Beers in the same way that De Beers is a key industry player.
ALROSA is the closest competitor of De Beers in terms of diamond sales and market shares, especially now that De Beers has ceased to monopolize the rough diamond supplies of ALROSA. It mines about 20 percent of the world's diamonds and in 2006, ALROSA inched it way into diamond sales with a 10 percent increase thus toppling De Beers. (World Diamond Council, 2007) Being a state owned enterprise, ALROSA has a high stake in its diamond production and sales because the company uses its profits for other state related requirements.
As a closed-type joint-stock company, it is owned by the followed public sectors:
ALROSA also aims to push the Russian diamond industry higher and hence, it puts its stakes in the global diamond industry. This is why it is developing itself into a vertically integrated diamond company. This is the niche that the company is gearing into, incorporating all the segments of the entire diamond value chain from mining to diamond jewelry retailing. (Investments & Income Website, 2011)
Similarly, both Aber and Leviev are also very prominent players in the diamond industry. With a significant 40 percent share in Diavik Mine, Aber aggressively pursues the diamond market. Meanwhile, Leviev is set to strengthen its market position in the industry by providing diamonds for its own company for other cutters, polishers and manufacturers around the world. It is trying to outcompete De Beers through the latter's mines in Angola and Russia. (World Diamond Council, 2007) Its leverage rests in its vertical integration or its ability to finish diamond production in the country of the diamond's origin.
On the other hand, key diamond players BHP Billiton and Rio Tinto are not exclusively into diamonds. They mine other minerals and materials like coal, copper, and iron. Hence, they mine and produce diamonds because they already have the institutional resources and equipment set up for diamond mining from their other mining operations or interests. As it is, it takes a little more operational costs for them to mine diamonds in addition to the industrial minerals that they are already mining. Thus, BHP Billiton and Rio Tinto may not see the diamond industry as a crucial business.
To illustrate, BHP Billiton is a one of the largest diversified company worldwide. It has significant shares in various industries and markets. The company has 38,000 staff in more than 100 global operations (estimated as 25 countries all over the world). (Investments & Income, 2011) It primarily aims to be a global company, not the number one diamond company. Its industry leadership is also geared towards the major commodity businesses such as aluminum, copper, energy and metallurgical coal, manganese, iron ore, nickel, silver, uranium, and titanium minerals. It also has vital interests in oil, gas, liquefied natural gas and diamonds. Its business model is founded on a diversified portfolio of high quality investments that supports the company with a more stable cash flows and higher capacity to increase growth than the traditional resource structures. As such, its strategies and resources are not concentrated in the diamond industry.
While Rio Tinto is a significant diamond producer and the largest producer of natural colored diamonds in the world, its diamond business is just one aspect of its business operations. The Diamonds business is under the Rio Tinto's Diamonds & Minerals Product Group. (Rio Tinto Website, 2012) Just this week, Bloomberg reported that BHP Billiton and Rio Tinto are planning to exit the diamond industry. (Biesheuvel, 2012) They are considering leaving the industry even as prices have increased for four consecutive years. This is because these two diversified companies perceive their little chances of dominating the diamond market unlike their iron ore businesses.
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Rio Tinto is specifically looking at the options of selling its diamond mining operations because these mines may no longer coincide with their general strategy. However, they have no corresponding operations scale at present. BHP Billiton has already opened the bidding for its diamond assets. In 2010, both BHP and Rio's combined value accounted for about 16 percent of global diamond production. They failed to outcompete the diamond industry leaders De Beers and ALROSA. Their positions are far from their market positions in their iron ore operations, where these two companies hold a lead in the market together with Brazil's company, Vale. This review came out in February, 2012 after Rio Tinto took a $344 million one-time charge for the diamond operations reflecting the higher costs of its Argyle mine expansion (located in Australia). It amounted to $2.1 billion. The company gets about 78% of its income from its iron ore production. It sees more prospects in expanding its output through the Pilbara region in Australia. It is also set to increase its iron ore production by more than 50 percent next year.
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