Aggregates competition fears

The UK aggregates, cement and ready-mixed concrete sectors are likely to be referred to the Competition Commission by the UK's Office of Fair Trading (OFT).

In a study, which began last year and was published today, the OFT said it had identified a number of features of the sectors which could "prevent, restrict or distort competition", and proposed referring the sectors to the Competition Commission for more detailed investigation.

The issues that it identified related both to structural features that it felt might dampen competition, and to the conduct of major firms towards smaller operators.

The OFT said these sectors had a combined turnover in 2009 of up to £3.4 billion (€3.87 billion) and were vital inputs to the construction sector, which represented 7% of UK's GDP (gross domestic product).

It found that some 40% of construction expenditure was in the public sector ­- for schools, hospitals, roads, and other physical and social infrastructure - with central government the biggest customer.

The issues that concerned the OFT included the high barriers to entry in aggregates and cement as a result of the difficulty in obtaining planning permission and the level of investment required.

It found a high and increasing concentration in the sectors, with five major players accounting for over 90% of the cement market, 75% of aggregates sales and 68% of ready-mix production.

The effects of vertical integration were another issue. The OFT said, "The major firms are integrated across aggregates, ready-mix concrete and cement. We have received complaints about vertically-integrated firms refusing to supply or discriminating against non-integrated competitors through their pricing."

It said it was unhappy with multiple contacts and information exchanges across the markets, saying that major firms were supplying each other with both aggregates and cement, and engaging in joint-ventures and asset swaps.

There was an apparent squeeze, said the OFT, between rising cement prices and stable or falling ready-mix concrete prices, affecting independents which both buy cement from vertically-integrated majors and compete against them in the ready-mix concrete market.

John Fingleton, OFT chief executive, said, "More than ever, well-functioning markets are crucial to economic growth. Aggregates, ready-mix concrete and cement, important in their own right, are also fundamental to the wider construction industry.

"We are concerned that competition is not working well in these sectors, with underlying features of the market giving rise to persistent concerns."

He added, "Lack of effective competition not only affects the public sector and business customers but ultimately leads to higher prices for consumers too."

The OFT will now consult until 30 September, 2011, on its proposal to refer the market to the Competition Commission. It said it would be speaking to key parties directly, although anyone who wants to make a submission can send their written views to aggregates@oft.gsi.gov.uk.