Diamonds are believed to be among the most precious commodities for trade. In the past three centuries, diamond has been considered to be one of the rarest mineral elements in the earth’s crust. However, the immense demand for diamond by the global population appears to be the most probable reason as to why diamonds have always been considered as a scarce trade commodity.
Interestingly, geological findings indicate that diamonds top the list of the most abundant gem-quality colored stones. It is argued that diamond pricing is the most outstanding feature which creates unusual demand; thus, making diamonds rare. The second reason why diamonds have been considered to be scarce is the nature of the market structure. Over the years, diamond market has been characterized with an unprecedented monopoly in which a single player existed in the market. As a result, diamond pricing and its supply experienced unique market trends, and this is the principal reason as to why diamond supply chain has been manipulated to create market demand against business ethics.
The De Beers Company has been exercising monopoly since its establishment in 1880s when Cecil Rhodes started diamond trading. Despite the legal barriers including the U.S anti-trust laws, this company has always exercised monopoly in diamond trading. However, monopoly in the diamond market seems to end soon because its supply will increase significantly after Russia joins the market. Recently, a huge diamond field was discovered in Siberia which can supply the world market with trillion of carats in the next thirty centuries. As a result, the structure of the diamond market is believed to change drastically in the future.
Therefore, this research paper will provide an overview of diamond trading, especially with regard to the principal elements of diamond pricing.
Table of Contents
Introduction
History of Diamond and Diamond Trading
Return Characteristics of Diamonds
Current Market Structure
Diamonds' Characteristics
Ethical Issues (Diamond Conflict)
Valuing Diamonds
Conclusion
Objectives and Core Themes
The primary objective of this research paper is to provide a comprehensive overview of the diamond trade, with a specific focus on the complex mechanisms of diamond pricing, the evolution of market structures from monopoly to a more competitive environment, and the persistent ethical challenges associated with the industry.
- The historical development and transformation of the global diamond trade.
- The impact of market structures—specifically the transition from De Beers' historical monopoly to modern market forces.
- The scientific and aesthetic characteristics that define the inherent value of diamonds.
- The complex ethical dilemmas surrounding "conflict diamonds" and the limitations of the Kimberley Process.
- The application of the 4C's (cut, color, clarity, and carat weight) in the valuation of diamonds.
Excerpt from the Book
Ethical Issues (Diamond Conflict)
Despite the flourishing of the diamond market, ethical issues are currently emerging which compromise the process of diamond trading. One of the most challenging ethical issues associated with diamond trading is the conflict issue, which has led to violence and tyranny in some areas where diamond is mined. Recently, Global Witness, an international environmental group explained several issues related diamond mining. In theory, diamond trading in conflict regions have become known to as ‘conflict diamonds’ because they are believed to fuel conflict (Bourne & Reimann 2001). However, it is worth noting that the issue of ‘conflict diamonds’ or the so-called ‘blood diamonds’ encompasses immense controversy. In practice, it is argued that the Kimberley process has created opportunities for diamond cartels to use revenues from diamond trading for financing armed conflict. Armstrong (2011, par. 1) reports “A major international environmental group has pulled out of the process to guarantee that diamonds do not come from conflict zones, saying the Kimberley Process had refused to evolve and address the clear links between diamonds, violence and tyranny.”
In this light, it is worth evaluating the Kimberley Process which is claimed to facilitate conflict in diamond mining regions, and identify the so-called ‘conflict diamonds’. It is also worth noting the population which is affected by the issue of ‘conflict diamonds’. Ideally, ‘conflict diamonds’ have been found to be traded illegally to generate funds for financing conflict in some of the war-torn African countries, especially in western and central Africa (Bourne & Reimann 2001).
Summary of Chapters
Introduction: This chapter introduces the diamond as a precious commodity, discusses its historical perception as a scarce resource, and outlines the role of market monopoly in shaping supply and pricing.
History of Diamond and Diamond Trading: This section traces the origins of diamond usage from ancient India to the discovery of major deposits in South Africa, marking the beginning of the modern trade era.
Return Characteristics of Diamonds: This chapter explores the financial nature of diamond investments, highlighting the low correlation with other assets like gold and the impact of market liquidity on pricing.
Current Market Structure: This chapter analyzes the evolution of the market from the long-standing De Beers monopoly toward a more decentralized, competitive structure driven by market forces.
Diamonds' Characteristics: This chapter details the physical properties of diamonds, such as hardness, heat conductivity, and transparency, which define their utility and aesthetic value.
Ethical Issues (Diamond Conflict): This section critically examines the emergence of conflict diamonds, the role of the Kimberley Process, and the ongoing humanitarian issues linked to diamond extraction.
Valuing Diamonds: This chapter explains the "4C's"—cut, color, clarity, and carat weight—as the primary metrics used to determine the commercial value of a diamond.
Conclusion: This final chapter synthesizes the evolution of the diamond industry, from historical myth to a complex, modern global market plagued by ethical and pricing complexities.
Keywords
Diamonds, Diamond Pricing, De Beers, Market Structure, Monopoly, Conflict Diamonds, Kimberley Process, 4C's, Carat, Clarity, Cut, Color, Ethical Issues, Diamond Trading, Investment.
Frequently Asked Questions
What is the core focus of this research?
The paper primarily examines the global diamond trade, focusing on how pricing is determined, how the market structure has evolved over time, and the significant ethical challenges faced by the industry.
What are the central thematic fields covered in the text?
The main themes include historical trade development, the shift from monopoly-based markets to competitive ones, technical valuation metrics, and the humanitarian crisis surrounding conflict diamonds.
What is the primary goal of this paper?
The objective is to provide a comprehensive overview of diamond trading, with specific attention to the variables that influence pricing and the influence of major corporations on global supply chains.
Which scientific or analytical methods were used?
The research relies on a review of historical data, institutional reports from organizations like the Gemological Institute of America, and an analysis of economic trends regarding market structure and asset correlation.
What does the main body of the work cover?
The main body covers the history of diamond mining, the transition of market control from De Beers to independent actors, physical diamond characteristics, the Kimberley Process, and valuation standards.
Which keywords best characterize this work?
Key terms include Diamond Trading, Monopoly, Conflict Diamonds, Kimberley Process, 4C's, and Market Structure.
How has the role of the De Beers Company changed over time?
De Beers held an near-total monopoly for over a century by controlling mines and supply, but the text notes that the market has increasingly shifted toward a more competitive or oligopolistic structure in the last 25 years.
What are the "4C's" and why are they important?
The 4C's (cut, color, clarity, and carat weight) are the primary parameters used in the industry to objectively measure quality and determine the final price of a diamond.
What is the significance of the Kimberley Process?
The Kimberley Process was established in 2000 to halt the trade of conflict diamonds, though the text highlights that critics argue it has failed to fully address the links between diamond trade and regional violence.
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- Caroline Mutuku (Autor:in), 2018, Diamonds Pricing and Ethical Issues Surrounding Diamonds, München, GRIN Verlag, https://www.grin.com/document/429851
