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Diamonds are not rare: so why are they so expensive?

The diamonds are not rare

Up to XIX century, diamonds were rare: only a few kilos per year were found in a few riverbeds in the world. Leaving aesthetic considerations aside, according to the law of supply and demand, their expensive price was somehow justified.

According to the Gemological Institute of America (GIA: a non-profit organisation), since the discovery of the South African mines in 1870, the situation has changed: the production of these mines increased from 1 million carats (200 kg) per year in 1870 to more than 176 million carats (35.2 tonnes) per year in 2005. Although these figures don’t take into account the quality of the extracted material, the number should give an idea of how scarce diamonds are. The amount of diamonds produced since antiquity up to 2005 is estimated around 4.5 billion carats, i.e. about 900 tonnes. Only the seven South-African DeBeers mines that were discovered in the XIX century and that were closed before 2005 have produced 163.6 million carats (around 33 tonnes), i.e. 3.7% of what has been ever produced. But there is more: the first three most productive mines in 2005 (Mbuji Maye in the Democratic Republic of Congo, Udachnaya in Russia and Argyle in Australia) had already produced 1.74 billion carats (348 tonnes) since the start of their exploitation, i.e. 38.7% of what was ever produced, with an expected future exploitation life of more than 10 years. The GIA concludes that 20% of all the diamonds ever extracted has been produced between 2000 and 2005.

But they are not cheap!

It is definitely clear that diamonds are not rare on the planet and there is definitely an inconsistency between their price and the amount of supply. As a comparison, in 2005, the world global emerald production in 2005 was 5,400 kg and the world global ruby production was 10,000 kg; these need to be compared to the 35.2 tonnes of extracted diamonds in 2005, as reported earlier. Yet, diamonds are more expensive than emeralds or rubies: why?

According to an article on The Atlantic from Edward J. Epstein published in 1982, this is the result of an accurate campaign from DeBeers. This also confirmed in another article on Business Insider (Australian edition) from Eric Goldschein published in 2011. In a nutshell, on top of creating the monopole of supply by taking care of all aspects of the diamonds trading business, DeBeers took care of creating the demand for diamonds through decades in several campaigns: if we now think that an engagement ring needs to have a diamond, we owe this to DeBeers! Progressively in 2001 and in 2011, though, the Oppenheimer family – who owned DeBeers since 1920 – has been selling everything to Anglo American, for a final settlement for the remaining 40% of the DeBeers group of $5.1 billions. In cash.

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{ 4 comments… add one }
  • Maddy 31-Oct-2013, 13:38

    You have rightly pointed it out – More than the supply it’s the perception around Diamonds which has managed to keep it afloat in the pricing arena. And the vested interests very well know how to manage such “perceptions”.


    • Armando Gherardi 31-Oct-2013, 15:05

      There is more: artificial diamonds are more pure than natural ones, but much less expensive!
      If we include the artificial ones in the count, it’s nearly impossible to justify the diamond prices with rarity!
      Plus diamonds are a crystal of carbon, i.e. one of the commonest elements on Earth – and perhaps in the Universe!
      Having said that, sometimes nature includes perturbations or impurities while fabricating the stone itself, that will confer a special colour or brilliance to the natural stone. This will definitely (and rightly?) make these gems more valuable!

  • Despre 12-Nov-2013, 12:34

    Two questions:
    1_ are not rubies more expensive than diamonts per carat?
    2_ are not Mont Blank pens selling for $300 in Duty Free shops even if we can buy pens for less than $1? Perhaps selling diamonds in prestige businesses is the right way to do this, and the elasticity theory applies fine if diamonds are having over unity elasticity (the more expensive the more turnover).

    • Armando Gherardi 13-Aug-2014, 23:55

      Here are my (late, very late) replies:
      1- Rubies are definitely more rare. In terms of price, the quality of each stone matters most but, on average, rubies will come up more expensive. I believe the main reason is that, being coloured, the effect of impurities becomes much less significant on the overall brilliance and/or colour of the stone. Anyway, if rubies are more rare and more expensive, this follows the law of supply and demand properly. The point I’m making is that diamonds are overpriced in accordance to their supply.
      2. The “Mont Blanc” thing is different: this is a man-made artefact. Rarity – or better said: supply – always counts; but also the intrinsic value (expressed by the work required to bring it to completion) cannot be neglected…. In my view, with diamonds, t’s not so much about elasticity: it’s the fact that the demand has been artificially created to support high price levels that would otherwise be unjustified.