Aggregates market investigation to go ahead

OFT refers aggregates, cement and ready-mixed concrete markets to the Competition Commission

THE Office of Fair Trading (OFT) has today referred the aggregates, cement and ready-mixed concrete markets in 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 announcement of a provisional decision to refer these markets in the UK in August 2011.

Having carried out a public consultation on its provisional decision and considered all the responses received, the OFT continues to be of the 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 says it has concerns regarding structural features of these markets as well as reasonable grounds for suspecting that these are preventing, restricting or distorting competition.

OFT chief executive John Fingleton said: ‘Competitive, well-functioning markets are important to drive economic growth and keep costs low. The aggregates, cement and ready-mixed concrete markets are part of the larger construction industry which provides vital inputs across the British economy.

‘Following public consultation, we continue to have concerns that these markets are not working well. As a result, we are referring them to the Competition Commission for further investigation.’

Features identified by the OFT in its market study include:

• High barriers to entry in aggregates and cement.
• High concentration: five major players account for upwards of 90% of the cement market, 75% of aggregates sales and around 70% of ready-mixed concrete production.
• The effects of vertical integration: the major firms are integrated across aggregates, ready-mixed 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 says 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. It adds that 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-mixed concrete.

Commenting on today’s referral by the OFT, Jerry McLaughlin, chief economist with the Mineral Products Association, said: ‘The MPA is currently examining in detail the reasons for the OFT’s decision but will continue to co-operate fully with the regulatory authorities and assist them in their investigations, as it has done to date. We hope the investigation is carried out without undue delay and does not impose excessive costs on our members whose markets are still operating 30% below pre-recession levels.’

Richard Bird, executive officer of the British Aggregates Association, said the BAA was not surprised with the OFT’s decision and would ‘await with interest’ to see what action, if any, the Competition Commission takes.