De Beers’ Diamond Insight Report, released this week, is built around one of its favorite topics: The long-term supply-demand outlook for the industry. “Industry fundamentals support long-term confidence in sector,” trumpeted its release.

The thinking goes like this: Supply will be limited in years ahead, as no major new mines have been found, and the bigger productions are slowly but surely losing steam. However, demand is set to grow exponentially in emerging markets such as India and China. Therefore, demand will outstrip supply, and prices will rise.

These fundamentals have been the subject of numerous charts, which show up in just about every diamond-industry presentation. For years, I used one in my presentations, created by since-departed miner BHP. I called it “the diamond industry’s favorite chart”:

One year, when putting my PowerPoint together, I realized the numbers were out of whack. We did not see a big supply-demand gap beginning in 2008. A few months back, Bloomberg noticed this too and reprinted a group of charts showing perpetually moving goalposts. “[The] long promised diamond supply gap stubbornly refuses to materialize,” wrote reporter Thomas Biesheuvel. 

What went wrong? The supply situation has, it’s true, been mostly steady (though recycled diamonds and synthetics might be under-the-radar factors on the supply side). Demand, however, has seesawed unexpectedly.

In 2008, after a heated summer of speculation, the global financial crisis killed the economy throughout the world, and prices sank. A few years later, India and China started fulfilling their much-talked-about potential, and diamond sales posted double-digit gains in both markets. In 2010, it looked like the big pull away had finally come: De Beers’ diamond prices jumped 27 percent that year. “I have been in the business for 20 years, and I have never seen such dramatic increases,” one dealer told me then. The increases continued the next year—so much so that a commercial labeled diamonds 2011’s “best investment.”

But as the economies in China and India cooled, so did the diamond business. Now here we are, in 2015, facing a supply glut rather than a shortage.

Talking to me this week, De Beers executive head of strategy and corporate affairs Bruce Cleaver says the model still has validity:

“You don’t model short-term or medium-term changes in the market in a long-term supply-demand analysis. That would be very difficult to model. If you plug into a model the expected growth in demand, it will get smoothed over during a ten-year period.

“If you plug in the expected growth in supply, all the new mines coming on stream are not significant. If you look at that, you would conclude that the supply-demand balance is healthy. That is very different than some of commodities where they have a different equation. There, if prices go up in a commodity, new mines come on stream becuase they are now economical. We don’t have that in the diamond world. So you don’t see the disruption of the supply-demand analysis.

“All we are talking about is medium to long-term we would expect growth in demand to outpace growth in supply. We think the model for expected growth is realistic. It shows, long-term, it is a good business to be in.”

Whether or not that proves true, this chart has turned into a tool for the industry to pitch itself to banks and financiers. But it may have sparked some of the speculation we saw in the past and perhaps even encouraged a certain laziness. If demand will so outpace supply, why bother spending money to stroke it? 

As we have seen this year, if the industry doesn’t create and nurture and sustain demand, all the strong fundamentals in the world will not matter. The diamond industry’s favorite chart paints an alluring picture of a bright future. But that future is by no means guaranteed, and it won’t come to pass unless the industry works to make it so.

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