Designer goods companies hate the internet because of its tendency to devalue and commoditise a “luxury brand”. But what does a diamond dealer do when his product is languishing on the shelves like yesterday’s prawn sandwich?

So dramatic has been the fall in diamond prices in this recession that De Beers has cut production by 40 per cent, shutting down its biggest mines in Botswana. Alrosa, the Russian company that ranks second after De Beers in the diamond league, said yesterday it would cut output by a fifth. The collapse in rough diamond prices sent Harry Winston, the jeweller and diamond dealer, plunging into a fourth-quarter loss. De Beers is bracing itself for a two-year diamond recession.

There may be a few old lags in the South African mining company who are shaking their heads, muttering: “I told you so.” De Beers used to run the diamond industry as a cartel, using its market clout to hoover up and hoard spare capacity in gems when the market was soggy. It argued – for a time successfully – that diamonds were different.

Everyone benefited from expensive stones: what fiancée wants to be told that the rock on her finger is a bargain? But rival producers got bigger, notably the Russians, who, following the collapse of the Soviet Union, stopped cooperating with De Beers and Argyle, the Australian miner, set up a rival to De Beers’ Central Selling Organisation. To make matters worse, there was the scandal of “blood diamonds” from war-torn Africa and De Beers called in Bain & Co, the management consultants, who advised against policing the price and instead marketing De Beers as a quality product.

Unfortunately, most punters cannot tell their carats from their cucumbers and De Beers has its work cut out to establish a brand. With the antitrust lobby in Brussels working hand in glove with the DoJ in Washington, there’s no going back to price-fixing. We may therefore see a cheap and vulgar diamond market emerge, but that may serve De Beers well if it can hold on to its links to the classiest jewellers. And if it does keep a lid on production, in two years’ time the price of pukkah diamonds will soar.

Credit is given to Timesonline by DiamondTopics.com (Cached News)