Tuesday, April 19, 2011

World Diamond Trade

Europeans once believed that the cutting or alteration of a diamond would destroy its magical properties, but sometime after 1330 AD, cutters in Venice learned how to shape polish a diamond with an iron wheel coated with diamond dust to produce greater brilliance. The city then became the first centre for diamond trading. Over the next century, diamond traders, mainly Jews escaping from persecution, shifted to Bruges and Paris, and laser to Antwerp. They marketed their diamonds to European jewellers, who began to set diamonds in jewels and royal regalia during the thirteenth and fourteenth centuries.

The diamonds came from Indian mines. Among the merchants who sailed east seeking to profit from the sale of diamonds and spices was the great Portuguese navigator Vasco da Gama. He was one of the first to sail via the Cape of Good Hope, hoping to avoid the Arab pirates who roved the Arabian Sea. He landed near Goa and this port became the Portuguese trading centre in India, and a flourishing trade in diamonds developed from Goa to Lisbon and then on to Antwerp.

The discovery of diamonds in Brazil caused the collapse of the diamond market in 1725 although it was initially advertised that these diamonds came from India. India and Brazil were the main sources of diamond up until 1851. Fifteen years later, the children of an African farmer picked up a white pebble that turned out to be a 21-carat diamond. This was followed soon afterwards by the discovery of another stone of 83 carats. These finds triggered a major diamond rush in South Africa and Rhodesia that later expanded into mining for gold and copper. Deep volcanic pipes that were apparently an inexhaustible source of diamond were then located, mined and factories started production.

In 1908, diamonds were found near the sea shore in South West Africa and by 1925, the stones that were found below thirty feet of sand on the coast of Namaqualand as well as north of the Orange River, proved to be the richest source of high quality gems. An unbelievable twenty-five per cent of the gathered stones were of the finest quality. Prospecting then began in the Belgian Congo; now Congo provides sixty per cent of world diamond output. Ghana, Sierra Leone and Tanganyika and the diamond fields in Yakutia in Russia, too, are now rich sources of diamonds. Mir, a hundred and sixty miles from a port on the river Lena was developed and yielded diamonds of more than four carats per tonne. The total production of gem quality diamonds inthe world is around thirty-one million carats, most of it being from Zaire.

When, in 1872, the great diamond rush had more than fifty-thousand miners looking for diamonds and chaotic conditions reigned, Cecil Rhodes bought them all out and formed the De Beers Consolidated Mines Company. With the help of the British government, this company began to take control of most of the diamond activity in South Africa and later formed the Diamond Trading Company (DTC). The DTC rigidly controled and still controls the sale of all diamonds. Even a part of the Russian diamonds has to be channelled through it. This cartelisation of the sale of diamonds has benefited the customer because the company stabilises the price by restricting the supply of rough diamonds. In principle, this control by a single company should make diamonds a good investment, but in practice other market forces prevail.

The profits of diamond mines depend mostly on gem quality stones. For example, twenty per cent of the diamonds mined in Congo is of gem quality. These gemstones are sent to London, where they are sorted according to their shape, quality, colour and size into about two thousand categories. The quality of the stones is judged according to the transparency and the flaws abserved. Colour makes a big difference to the value of the stone. The best are clear 'white' or colours stones, while pink, pastel green or blue stones have a special rarity value. The yellow or brown stones are very common and do not count for much. All diamonds are valued and collected into packets and sold in London to selected buyers. These 'sight holders' are offered the packets on a 'take it or leave it' basis. No selection is allowed. Sight holders then take the stones in their packets back to their own conutries for cutting and polishing.

A number of rough diamonds originate in the disturbed war zones of Angola or the Congo. Most of these 'conflict diamonds' from Congo and Sierra Leone appear to be smuggled into Zimbabwe. Liberia and other neighbouring countries. Diamond experts believe that only about a third of Congo's annual diamond production in being sold through the country's official market. Human rights groups have been concerned that the trade in these diamonds is being used ti finance rebel groups fighting in African countries. One such group based in London showed that in October 1998, Be Beers pumped large amounts of money into rebel coffers by purchasing diamonds from unrecognized sources in the Congo and Angola. Refuting these charges, the DTC now guarantees that one of its diamonds originate from African rebels, but come instead from its own mines is South Africa, Botswanna or Namibia, or are bought from mines in Russia or Australia. However, even a powerful organization like De Beers cannot totally stop diamonds from being smuggled from the war zones in exchange for arms or drugs. Thought perhaps only three percent come from these areas, in spite of strict vigilance, some conflict diamonds from the war zones of Africa will continue to leak into the market until the diamond industry finds a way to stop it.

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