UK: The Office of Fair Trading (OFT) has published a market study into cement, ready-mix concrete and aggregates. It proposes to refer these key sectors of the construction industry to the Competition Commission for more detailed investigation.
Key issues that the OFT study covered featured the high barriers to entry in these sectors due to the difficulty of obtaining planning permission and the level of investment required. It was noted that high and increasing concentration dominated the market with five major players accounting for over 90% of the cement market and 68% of ready-mix concrete production.
The study picked up on the effects of vertical integration pointing out that the major firms are integrated across ready-mix concrete and cement. The OFT had also received complaints about vertically integrated firms refusing to supply or discriminating against non-integrated competitors through their pricing. Multiple contacts and information exchanges across the markets were mentioned, with major firms supplying each other with both aggregates and cement and engaging in joint ventures and asset swaps.
Lastly the study noticed an apparent squeeze between rising cement prices and stable or falling ready-mix concrete prices, affecting independents that both buy cement from vertically integrated majors and compete against them in the ready-mix concrete market.
John Fingleton, OFT Chief Executive, said, "We are concerned that competition is not working well in these sectors, with underlying features of the market giving rise to persistent concerns."
Cement, ready-mix concrete and aggregates sectors had a combined turnover in 2009 of up to Euro3.86bn and are vital inputs in the construction sector, which represents 7% of UK GDP. Some 40% of construction expenditure is in the public sector, for schools, hospitals, roads and other physical and social infrastructure, with central government being the biggest customer.
The OFT will consult until 30 September 2011 on its proposal to refer the market to the Competition Commission. Key parties will be contacted directly but parties wishing to make a submission are invited to contact the OFT in writing.
