This account is based on interviews with more than a dozen mining executives, traders and other industry insiders, including at some of De Beers’ biggest buyers, most of whom asked not to be identified discussing private information.

Speaking privately, some of the company’s biggest customers say they are frustrated that the one-time monopoly seems unable to provide the leadership the industry needs. But De Beers, which for years acted as a protector by providing its customers with built-in profit margins, says its own business must come first.

The company said it has already taken a range of actions, including reducing production, combining sales, offering additional flexibility to buyers and large-scale investments in marketing natural diamonds. It’s also been reluctant to pour even more discounted diamonds into a market awash with stones.

(http://www.autoadmit.com/thread.php?thread_id=5676196&forum_id=2#48627469)

It was also one of the world’s most successful marketing machines. Working with Madison Avenue PR men, De Beers was responsible for establishing diamonds as the ultimate luxury purchase. It created the slogan “A diamond is forever” and dreamed up the idea of counting the number of months of salary an engagement ring should cost.

The monopoly was finally ended at the turn of the century when De Beers lost a 10-year legal battle with the US over price fixing. While its market share has slowly eroded since then, De Beers still accounts for roughly a third of global supply.

(http://www.autoadmit.com/thread.php?thread_id=5676196&forum_id=2#48627472)

Cheap fashion jewelry has been hit especially hard — customers who previously would spend a couple of hundred dollars for flawed stones can now get perfect synthetic diamonds for the same price. Boston Consulting Group estimates production of lab-grown diamonds has grown 10-fold in six years, dragging down both demand and prices for their natural equivalents.

And while the production of lab-grown stones has exploded, the price has plunged. Insiders say that wholesale prices have fallen more than 90% in the past half decade and now sit just above the cost of production.

(http://www.autoadmit.com/thread.php?thread_id=5676196&forum_id=2#48627474)

The strategy raised eyebrows: De Beers had broken one of the industry’s great taboos by selling lab-grown diamonds, something it had always forbidden its own buyers from doing themselves. And the plan was overtaken by events, as Chinese mass production sent prices crashing far lower than it could compete with, and De Beers finally announced last year it would give up synthesizing diamonds for jewelry.

(http://www.autoadmit.com/thread.php?thread_id=5676196&forum_id=2#48627476)

At November’s sale, buyers arrived in Botswana’s capital Gaborone to find that De Beers was pricing its rough stones about 25% above the going rate in the broader market. Many simply refused to buy.

Commenting on the sales, diamond-trading head Paul Rowley said the company takes a long-term view on rough-diamond pricing and uses a range of inputs to make decisions.

“Secondary market trading prices can provide a data point, but the key will always be to look at the profitability of diamonds once they’ve been polished and sold,” he said. “We’ll continue to keep a close eye on developments and will respond as appropriate,” he said.

By December, the company had capitulated with a cut of between 10% and 15%. But De Beers rough diamonds were still far more expensive than diamonds in the secondary market, where traders and manufacturers sell among each other. Even worse: a temporary concession allowing buyers to reject portions of each box of diamonds had now been removed. While the top-line price was lower, customers were expected to buy more loss-making diamonds.

Again, buyers were left fuming.

Relations were already tense after the company’s head of sales wrote to customers telling them that De Beers plans to reduce the number of accredited clients. While a final decision hasn’t been made, it’s expected numbers may fall to around 50 from the previous 70, according to people familiar with the situation. It has also told customers that if they want to remain as accredited buyers – or “sightholders” — they need to buy more diamonds.

(http://www.autoadmit.com/thread.php?thread_id=5676196&forum_id=2#48627478)