Cement price trends in the UK

The price of cement is the subject of questions often asked but seldom answered satisfactorily. Manufacturers, certainly in the UK, tend not to publicise anything other than an aspirational percentage increase from time to time and the government issues figures that reveal only trends against an index. Market commentary generally confines itself to comparative statements, rather than identifying absolute prices.

In seeking accurate cement prices, there are several variables to consider. The price will alter according to the specification of the cement, white is traditionally about three times the price of grey for instance and will be subject to commercial negotiation and discounts based on the level of business a customer can provide. In some markets prices are quoted with transport cost included, others excluded. Bagged cement prices are always different from the price of cement in bulk.

The practice in the UK is to cite the price of a tonne of cement in bulk, excluding transport and discounts. Any price of this sort is, therefore, a conventional one. It therefore needs to be seen as such; suitable to identify trends and perhaps adequate to incorporate into construction estimates, but not reliable enough to be used as the basis of a commercial decision. Individual series are compiled from different sources of data. While these are consistent with themselves over time, they cannot often be compared to each another.

Historical cement prices

The Common Price Agreement (CPA), a legally approved cartel operated since 1934 by the UK Cement Makers' Federation, was abandoned in 1987. The decision was the result of pressure from increasing imports, some of which were from countries in which cement makers received government subsidies for fuel.

Competition replaced the agreed pricing structure. Prices, having risen sharply in the late 1970s and 1980s, declined briefly in the early 1990s. In 1994, at the end of Peter Jackson's 80-year UK cement price survey, GBP40/t was cited as 'not an untypical price.'

A competitive market from 1987

With the advent of competition, actual purchase prices were monitored by the estimating services of various quantity surveyors. Figures from the Wessex database were reproduced in the long-established 'Building' magazine. They reflect the final phase of rising prices before the decline of the early 1990s.

The above prices include haulage to site, but not VAT. By way of comparison, Spon's Architects' and Builders' Price Book quotes the following figures, inclusive of transport to sites in the inner London area:

Onward prices from the Wessex database are at odds with Jackson's claim of falling prices after 1990, highlighting the difficulty of assessing even cement price trends. Data from this source suggested an increase in prices:

However, in August the then parent company of Castle Cement, Euroc, stated, "Cement consumption in the UK this year (1992) is expected to be approximately 35% lower than three years ago (1989). At the same time, price levels have decreased further in 1992. In the London area prices have fallen almost to the level of ten years ago (1982)."

A modest recovery in prices took place in the mid 1990s as construction worked its way out of the deep recession of 1990-92. GBP50/t was an oft-cited 'ball-park' figure and a report from Merrill Lynch, put it at US$80/t, which at the time was roughly equivalent.

The report commented, "Ironically there is enough evidence to suggest that pricing has been more resolute since the disbanding of the common price agreement in 1987. Prices of bulk (cement) have risen each year during the 1990s, although with size rebates to the largest customers, the net realised price gains are not as positive as illustrated in the official data."

Recent developments

2006: With prices in 2005 pushed up by a combination of fuel costs and the impact of chromium VI and working time regulations, cement prices in January 2006 were reported to have risen by GBP5-6/t. Indeed the final quarter figures of 2005 from Cemex explicitly remarked that higher kiln fuel and electricity costs were being recovered by higher prices.

Prices of building materials generally rose by 2.9% in the first half of 2006, but those of energy-intensive products by a higher margin. Bricks were up by 6% and cement was up by 8%. The upward trend continued when, in September 2006, Lafarge announced a 15% rise in the price of bagged cement from October 2006 and for bulk cement from January 2007. Castle Cement followed suit with a 10% rise, blaming spiraling fuel and raw material costs. (Tarmac) Buxton Lime was reported to be considering increases, although Cemex claimed not to be.

2007: The increasing price of cement caused some concern among the aggregates and ready-mixed concrete companies and in early 2007 the British Aggregates Association (BAA) commissioned Cartel Damage Claims to investigate. It claimed that prices were 'going through the roof.'

The BAA considered that cement makers were giving preferential treatment to their associated concrete businesses over independent companies. Reports from 21 and 28 March 2007 gave concerns about discriminatory pricing, which the Office of Fair Trading was thought to be investigating. These claims were rejected by the cement makers at the time.

Despite the fact that no cartel-like behaviour was identified in the UK cement market at this time, it was becoming increasingly clear that the higher costs were in general being recouped from customers. Throughout the summer of 2007 there was speculation from sources such as the Confederation of British Industry (CBI) over imminent price increases. Cement producers were expected to introduce 'budget-busting price hikes' in August 2007, with the price of bulk cement rising by as much as 20%, or GBP15/t on top of the existing GBP70/t rate by the start of 2008.

A report by EC Harris in March 2008 retrospectively quantified the price increase of cement-based products as 6 - 7% during 2007.

2008: By the start of 2008 the rising cement price trend was all too obvious. Early in the year a further calculation by EC Harris suggested that cement-based building materials had experienced inflation of 7.9% during the booming 12 months to February 2008. If anything, the price of cement then gathered pace, a 10% rise since January was reported in August 2008. In October 2008 the annual figure had risen to 14.5%, according to the Department for Business, Enterprise and Regulatory Reform (now the BIS), but that masked a slow-down to only 4.7% in the latter six months as the recession started to bite.

The allegations of price fixing that surfaced in 2007 receded but did not entirely go away. Investigators seeking evidence will have taken heart from events in Germany in May 2008 where an appeal by cement makers against a cartel lawsuit was rejected. Then, in November 2008, extensive publicity was given to a European Commission investigation into a suspected price cartel allegedly maintained by the multinationals: Lafarge, Holcim, HeidelbergCement, Cemex and Dyckerhoff. No case, however, was brought against producers in the UK.

2009: Prices continued to rise into 2009. The growth was not even, however, and attempts to inflate prices to compensate for falling volumes could not last.

Lafarge, for example, reported price rises of 8.6% and so while the index figure was 130.6 in December 2008, and manufacturers' increases in the New Year led to a value of 143.3 by February 2009, the monthly levels declined steadily thereafter as a reflection of market weakness. Despite this, the average of 138.5 remained higher than that of 2008.

2010: During 2010 the annual cement price average showed a decline for the first time in recent years.

The decline in price levels was modest and in fact the price of cement remained remarkably steady throughout the year, compared to the index of 134.6 seen in November and December 2009.

Lafarge reported 'pressure on pricing' in 2010 and looking ahead, at the turn of 2011, Hanson foresaw 'downward pressure on prices' in Europe. Holcim's chief executive also warned that cement prices would be kept under pressure by the market.

Current cement prices

UK cement prices have proved to be relatively flat in the UK in 2011 according to the government index:

In May 2011 the price was informally said to be in the GBP90/t region and the latest edition of Spon's Price Book, 2012 (published September 2011), suggests a figure of GBP96/t of 'Ordinary Portland to BS12' for 'Measured Works,' compared (on its terms) with GBP102/t in May 2010.

Above: Prices in this article are given in contemporary British Pounds Sterling. The table above gives average USD/GBP exchange rates for 1987-2011.

Sources: Pacific Exchange Rate Service, University of British Colombia (1987-2009) & monthly exchange rates from www.x-rates.com.

Summary

In recent years, price increases in the UK cement industry have tended to be announced in the autumn, and have come into effect in the first quarter of the following year. Large price increases were introduced in 2005 and 2009, driven by fuel price increases in 2005 and both increased fuel prices and an attempt to offset falling volumes in 2009. Over this time, plant closures helped to restrict the supply of cement, matching the declining demand.

After rising in the spring, prices reach a peak in the summer months and then level out, declining sightly over the course of the rest of the year. Poor winter conditions in December 2010 resulted in low levels of demand and a glut in supply during January 2011 as builders used up stocks, which consequently forced a low selling price.

The highest ever UK cement prices were achieved in February 2009. Demand dropped most significantly in that year, falling due to a 25% collapse in demand by January 2010.

References

BIS. 'Monthly Statistics of Building Materials and Components,' London: ONS, 2003-2011.

Euroc, 'Euroc interim report - August 1992,' 1992.

Hunger S.G., 'Cement market dynamics and pricing', in Global Cement Magazine, PRo Publications International Ltd, Epsom, UK, January 2011.

Jackson, P., 'Cement Manufacture by UK Companies 1914 to 1994.' Privately printed, 1999.

Merrill Lynch. 'The cement industry,' 8 December 1997

Spon's 'Architects' & Builders' Price Book,' 1987-1990 and 2011-2012.

Wessex data in Building, 1987-1991.

CISF annual reports on the British cement industry.