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Competition Commission uncovers ‘serious problems’ in cement market

Competition Commission uncovers ‘serious problems’ in cement market

Limitations on competition in the UK’s cement industry could have cost the UK consumer £180 million or more in just four years.

The Competition Commission revealed the provisional findings of a major probe into how the concrete market in Great Britain operates.

In a hard-hitting report, the watchdog said it may force the country’s three major concrete producers Lafarge Tarmac, Cemex and Hanson to sell off production assets in order to open up the market and increase competition.

Cemex operates several sites across Tayside and Fife including Loanleven Quarry in Perthshire and Collessie Quarry in Fife. Lafarge Tarmac has its Scottish base at Bellshill. Hanson is Berkshire-based.

The probe provisionally found issues with both the structure of the concrete market and the fact the main operators had an “unusually high level of understanding” of each other’s businesses.

The report said this had allowed the three companies to coordinate their behaviour and soften competition, with the result that prices were higher for consumers.

Despite the findings, the CC said it was not accusing the three producers of explicit collusion.

“We have provisionally found some serious problems with the way the cement market operates in GB,” said Professor Martin Cave, Competition Commission deputy chairman and inquiry group head.

“There are only four cement producers in the UK and one of those is a new entrant to the market.

“This concentration and the close links between the producers at many levels along with industry practice, has for a long time given GB producers detailed awareness of how their counterparts are performing, as well as of their future pricing strategy.

“Established information channels such as price announcement letters can signal their plans, and tit-for-tat behaviour and cross-sales can be used to prevent or retaliate against any moves to disturb the overall balance between the different players in this market.

“They have also been in a position to increase the already significant barriers that exist for new entrants.

“Our finding does not mean they are explicitly colluding or operating a cartel because there are already several ways of communicating each other’s intentions without the need for specific discussions,” he said.

“Given the extent of the problems we have found, we feel that hard-hitting measures may be necessary to open up the cement market to greater competition by transforming existing structures and behaviour.

“The fundamental importance of this product to construction and building and the amount of such work that is funded by the public purse only underlines the need for these actions.

“Our initial assessment is that these problems could have cost GB consumers around £180m over the period 2007 to 2011, and we also believe this could be an underestimate.”

The CC said it was now looking at a wide range of possible remedies to increase competition in the cement market, including placing requirements on the major producers to sell-off cement plant, the creation of a cement buying group, the banning of generalised price announcement letters to customers, and restrictions on making available other information which can aid coordination.

The commission yesterday said it was now taking comment from stakeholders on the provisional report.

Responses must be submitted by June 12 and the CC will publish its final report on the industry by January 17 next year at the latest.

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