Diamonds are for crap

The New York Times is running a miraculous piece in the business section about the Russian diamond company, Alrosa. (The Russian government owns a 90% stake in the company).

Here's the basics: diamonds are not a particularly rare stone. They're just mined by two companies (De Beers and Alrosa) that have been colluding for decades to keep prices inflated.

De Beers was recently forced, by a EU decision, to stop hoarding diamonds to inflate their price. In response it's cut production, leaving Alrosa as the worlds largest diamond producer. The world market for diamonds has essentially been scuttled, and Alrosa (unburdened by any government regulation) is busy hoarding its diamonds and attempting to market them as investment opportunities (rather than selling them as decorative stones).

Choice quotes:

“If you don’t support the price,” Andrei V. Polyakov, a spokesman for Alrosa, said, “a diamond becomes a mere piece of carbon.”

“A diamond ring should not cost $100,”

“We have to tell people that diamonds are valuable,” he said. “We are trying to maintain the price, just as De Beers did, as all diamond producing countries do. But what we are doing is selling an illusion,” meaning a product with no utility and a price that depends on the continued sense of scarcity where there is none.

It's quite difficult for me to understand how the diamond myth got started and how it's been propagated for so long. And my brain just can't quite wrap around the concept of selling diamonds as an investment. If they're just common stones (albeit pretty ones), then what would ever make their value rise above the cost of digging them out of the ground?

Here's to the hope that the diamond industry is on its death-bed.