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Aggregates market investigation

OFT proposes to refer aggregates, cement and ready-mixed concrete markets to Competition Commission

THE Office of Fair Trading (OFT) has today announced that it proposes to refer the aggregates, cement and ready-mixed concrete markets to the Competition Commission for more detailed investigation.

The announcement follows publication of the OFT’s market study into the UK aggregates sector, which was launched in September 2010 following concerns over competition in the marketplace.

In its study, the OFT says it has identified a number of features of these sectors which could prevent, restrict or distort competition. These relate both to structural features that may dampen competition, and to the conduct of major firms towards smaller operators.

Issues include:

  • High barriers to entry in aggregates and cement due to the difficulty of obtaining planning permission and the level of investment required.
  • High and increasing concentration, with the five major players accounting for over 90% of the cement market, 75% of aggregates sales and 68% of ready-mixed concrete production.
  • The effects of vertical integration: the major firms are integrated across aggregates, ready-mixed concrete and cement, and the OFT says it has received complaints about such firms refusing to supply or discriminating against non-integrated competitors through their pricing.
  • 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.
  • An apparent squeeze between rising cement prices and stable or falling ready-mixed concrete prices, affecting independents which both buy cement from vertically-integrated majors and compete against them in the ready-mixed concrete market.

OFT chief executive John Fingleton said: ‘More than ever, well-functioning markets are crucial to economic growth. Aggregates, ready-mixed 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. As a result we are proposing to refer these sectors to the Competition Commission for further investigation.’

The OFT says it will consult until 30 September 2011 on its proposal, and during that time will be speaking with key parties directly. Others who wish to make a submission are invited to send written views to: aggregates@oft.gsi.gov.uk

Commenting on the OFT’s proposed decision, Mineral Products Association chief executive Nigel Jackson said: ‘The MPA, with its members, is currently reviewing the market study in detail and will continue to assist the OFT during the consultation period.’

In a separate statement, Tarmac’s parent company, Anglo American, said: ‘We are disappointed with the OFT’s provisional decision, subject to further consultation, to refer the UK aggregates market to the Competition Commission, as we believe that there is effective competition in the sector.

‘We are analyzing the content of the OFT report and will continue to co-operate fully with the regulatory authorities and assist them with their review.’

 
 

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