UK cement market to be broken up

By Helen Wright15 January 2014

The UK Competition Commission is to force Lafarge Tarmac and Hanson to sell some of their cement production assets to allow the entry of a new producer into the country.

Following a two-year investigation into the UK market for aggregates, cement and ready-mixed concrete, the regulator estimated that higher prices resulting from lack of competition cost customers up to £50 million (€60 million) a year.

In the cement market, it said the issue was costing customers at least £30 million (€36 million) a year, and a further £15 million (€18 million) to £20 million (€24 million) in the market for ground granulated blast furnace slag (GGBS).

The Competition Commission said it would also take action to limit the flow of pricing information shared between producers. Publication of data on cement production would be required to be delayed by at least three months, while cement suppliers would also be prohibited from sending generic price announcement letters to their customers.

Instead, the regulator said any future price announcement letters would have to be specific and relevant to the customers receiving them.

There are currently three major cement producers – Lafarge Tarmac, Cemex and Hanson (a new entrant) – in the UK market. Hanson is owned by HeidelbergCement, while Holcim owns Aggregate Industries.

The regulator said it would require Lafarge Tarmac to sell a cement plant and some accompanying ready-mixed concrete plants if necessary to facilitate entry of a new producer.

Asset sales

It said Lafarge Tarmac would be required to choose between selling either its Cauldon or its Tunstead cement plant. The purchaser of the asset would also be able to acquire a limited number of ready-mixed concrete plants from Lafarge Tarmac if certain conditions are met. The buyer would have to be approved by the Competition Commission and cannot be one of the UK’s existing cement producers.

Additionally, the authority said it was looking to increase competition in the supply chain for GGBS by requiring Hanson to sell one of its GGBS production facilities.

Hanson is the only domestic producer of GGBS in the UK, with exclusive rights to use the output of Lafarge Tarmac, the single domestic producer of granulated blast furnace slag (GBS), which is the main raw material input into GGBS.

It said Lafarge Tarmac would also be required to enter into a long-term agreement to supply GBS to the acquirer of the Hanson GGBS production facility. This buyer would also have to be approved by the Commission, and cannot be an existing UK cement producer.

The Competition Commission said the three dominant producers had “refrained from competing vigorously with each other by focusing on maintaining market stability and their respective shares”.

However, the regulator said its investigation did not identify any problems with the markets for aggregates or ready-mixed concrete.

Independent producer

Professor Martin Cave, Competition Commission deputy chairman and chairman of the inquiry group, said, “We believe that the entry of a new, independent cement producer is the only way to disturb the established structure and behaviour in this market which has persisted for a number of years and led to higher prices for customers.

“‘Despite falling demand and increasing costs during the last few years, profitability among UK producers has been sustained and their respective market shares have changed little. This is not what you would expect to see in a well-functioning market, under these circumstances.

“Cement is an essential product for the construction and building sectors, and the amount of such work that is funded by the public purse only underlines the importance of ensuring that customers get better value for money. We believe our measures can bring about a substantial, swift and lasting increase in competition in this economically vital market.”

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