The Competition Commission has found that the “structure and conduct” of the cement market in the UK is “aiding co-ordination” between major producers in Great Britain, who could be forced to sell plants under possible remedies.
The commission is lining up measures to “break open” the cement market after it concluded that co-ordination between the three major cement producers (Lafarge Tarmac, Cemex and Hanson) is “likely to be resulting in higher prices for all cement users”.
The commission has not identified any problems with the markets for aggregates or RMX.
But its initial assessment is that the problems with the cement market could have cost consumers at least around £180m from 2007 to 2011.
On 18 January 2012, the Office of Fair Trading referred to the Competition Commission for investigation and report the supply or acquisition of aggregates, cement and ready-mix concrete in the Great Britain.
In a market study, the OFT had identified features that included high barriers to entry in aggregates and cement and high concentration with five major players account for upwards of 90 per cent of the cement market, 75 per cent of aggregates sales and around 70 per cent of ready-mix production.
It also highlighted multiple contacts and information exchanges across the markets, with major firms supplying each other with both aggregates and cement, and engaging in joint-ventures and asset swaps.
The commission today stressed that its findings do not relate to “explicit collusion”, rather that the market is highly concentrated with only four GB producers (including new entrant Hope Construction Materials) who have an “unusually high level of understanding of each other’s businesses” which the commission said has created conditions that allow three of them to co-ordinate their behaviour, “softening competition and resulting in higher prices for consumers”.
Remedies to be examined now include requiring the major producers to divest cement plants (and RMX operations as part of the remedy to co-ordination in cement); the creation of a cement buying group; prohibiting generalised price announcement letters to customers; and restrictions on making available other information that can aid co-ordination.
Competition Commission deputy chairman and chairman of the inquiry group Professor Martin Cave said: “We have provisionally found some serious problems with the way the cement market operates in Great Britain.
“In a highly concentrated market where the product doesn’t vary, the established producers know too much about each other’s businesses and have concentrated on retaining their respective market shares rather than competing to the full.
“Strikingly, despite low demand for cement over recent years, prices and profitability for the Great Britain producers have still increased.”
Markets in Northern Ireland were not considered under the investigation.
The commission will now invite interested parties to submit reasons in writing as to why these provisional findings should not become final by Wednesday 12 June 2013.