British cement, aggregates and ready-mix markets probe confirmed

The UK’s Office of Fair Trading has confirmed it will refer the aggregates, cement and ready-mix markets of Great Britain to the Competition Commission.

The decision to make a market investigation reference follows the publication of the OFT’s market study and its provisional decision to refer these markets in the UK in August 2011.

Having carried out a public consultation on its provisional decision, the OFT said in a statement that it continues to be of a view that competition may not be working well in Great Britain but has decided not to refer these markets in Northern Ireland because the features identified are not present to the same degree.

In particular, the OFT has concerns regarding structural features of these markets and reasonable grounds for suspecting that these are preventing, restricting or distorting competition. John Fingleton, OFT Chief Executive, said: “Competitive, well-functioning markets are important to drive economic growth and keep costs low. The aggregates, cement and ready-mix concrete markets are part of the larger construction industry which provides vital inputs across the British economy.

Features the OFT identified in its market study include:
•  high barriers to entry in aggregates and cement.
•  high concentration: five major players account for upwards of 90 per cent of the cement market, 75 per cent of aggregates sales and around 70 per cent of ready-mix production.
•  the effects of vertical integration: the major firms are integrated across aggregates, ready-mix concrete and cement.
• multiple contacts and information exchanges across the markets, with major firms supplying each other with both aggregates and cement, and engaging in joint-ventures and asset swaps.

The OFT said that these features, in combination, may have the potential to reduce competition in settings with high levels of concentration, particularly given the largely homogenous nature of the products, and may lead to the erosion of independent competition in the medium to long-term. The effect in the long-term could be a further weakening of competition between the firms, resulting in higher prices for aggregates, cement and ready-mix concrete.