De Beers Diamond company is fielding legislative attacks coming out of Europe, targeting its rough diamond trade. The company, which is majority owned by Anglo American PLC and controls approximately 70% of the world’s rough diamond supply, has proposed a deal accepted by Europe’s highest court according to which it will cease all purchases of diamonds from Russian supplier, Alrosa.
A lower European court had struck down the decision, though on Tuesday, June The European Court of Justice upheld the European Union competition authorities, Europe's antitrust regulator, in the appeal.
Alrosa is the largest diamond company in Russia, and provides approximately 25% of the world’s rough diamonds. It has a virtual monopoly over the Russian market, with a market share of 97% there.
DeBeers and Alrosa partnered for 50 years in the diamond trade, the two companies together controlling 95% of the world’s rough diamonds. Now, they are being forced though antitrust laws to go their separate ways, hopefully paving the way for competition.
Back in 2002, the two companies had signed a trade deal where Alrosa would sell $3.8 billion in rough diamonds to De Beers over 5 years. The deal was struck down over fears that it would increase De Beers’ global dominance in the diamond market.
The deal was accepted by De Beers without consulting Alrosa at first, the latter then appealing to the lower court, winning its case against the annulment of the agreement until it was just overturned again by the European High Court.
Alrosa is a sort of leftover from the Cold War era, an aggregate of USSR state-owned diamond industry giants, set up by presidential decree enacted by then President Boris Yeltsin in February 1992.
De Beers, having its roots in a more capitalistic start, is the child of Cecil Rhodes, and has been controlling the diamond industry for most of the 20th century, and into the 21st. Their marketing strategy is seen as being responsible for inflated diamond prices, convincing prospective husbands that a good diamond should cost between two and three months’ salary. With De Beers’ power as it is, they could have lowered diamond prices significantly and expanded their customer base.
The recent court ruling may not have the effect of breaking De Beers’ monopoly, but it may provide breathing room for young competitors who want to buy from Alrosa instead.
