Diamond traders go in search of higher margins as costs rise

Faced with a limited global supply of diamonds and rising operating costs, De Beers and Rio Tinto executives are pointing to branded diamonds, which deliver much higher margins, as the future for the industry.

"We don't pay for rational," De Beers executive vice-president and Forevermark chief executive Stephen Lussier said at the launch of the firm's Diamond Insight report this week. "What is the difference between my Rolex and my son's Swatch? Which one tells the time better? I wear a Rolex to feel a part of the brand's world."

Lussier added that the industry could mimic luxury fashion houses in building an emotional story behind the products so that diamonds weren't simply a commodity.

"We won't get the same margins as Louis Vuitton because [leather] is not worth [as much] as a raw material but you can build the desire," he said. "There is nothing more powerful than a Tiffany & Co box."

Rio Tinto Diamonds managing director Jean-Marc Lieberherr echoed those sentiments while in town yesterday for the Argyle Pink Diamonds Tender. "How much would you pay for a diamond? A million dollars? With the right branding and marketing, we can get past the [price] ceiling," he said.

Diamantaires face ballooning costs as mining sites become more mature, sending diamond recovery costs up. No major economically viable mine has been discovered in recent years and the likelihood is low, according to De Beers, which predicts global supply will peak in 2020. Rio Tinto says supply should peak around 2017.