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One simple way to comprehend this is to examine the Argyle mine in Western Australia, one of the largest diamond mines globally. Throughout its 37-year history, it was frequently the top diamond producer in the world, producing a maximum of 42 million carats in 1994 and an average of 8 million carats every year. Argyle is widely recognized as the world's main source of pink diamonds. Despite having an abundance of diamonds still in the mine, Rio Tinto chose to cease production in late 2020 due to financial losses. The main reasons for these losses were the rising operational costs and a stagnant diamond market, caused by an overabundance of diamonds relative to demand.
There's an excessive amount of mined diamonds available in the market today that even a hugely successful mine like Argyle can't generate profits. In the upcoming sections, we'll delve into the most substantial reasons for this oversupply, resulting in a lack of sufficient demand.
The phrase "Diamonds are forever" is a well-known saying, and it holds some truth, but it also presents a challenge for the diamond mining industry. Once a diamond is mined and enters the market, it will always be in circulation. Unlike other consumer goods like cars or phones that are often replaced every few years and eventually end up in a landfill, diamonds never become obsolete. They can be resold or recut and issued with a new certificate by a Diamond Laboratory, effectively making them "new" again. This ongoing cycle of diamond recirculation, combined with increased diamond mining, has resulted in an oversupply of diamonds that the market cannot keep up with.
Traditionally, every diamond engagement ring either reenters the market through the aforementioned cycle or is passed down as a family heirloom to future generations.
The underlying cause of the diamond oversupply is the mass production of diamonds over the past 140 years. From 1880 to 1919, the prices of diamonds dropped by half. It wasn't until De Beers intervened, limiting the supply of diamonds and implementing an effective marketing campaign, that the prices stabilized and gradually increased.
Due to the excessive quantity of diamonds extracted, especially in the last 140 years, those diamonds continue to circulate and will do so for an extended period. This lack of scarcity and rarity means there is an overabundance of diamonds for sale, leading to perfectly functioning mines having to close down as there are not enough purchasers to absorb the supply. While population growth is often cited as a factor, it is negligible compared to the volume of diamond mining and the constant influx of diamonds back into the market.
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