U.K. bureaucrats look to loosen Cemex, Hanson, Lafarge cement market concentration

Sources: Competition Commission of the United Kingdom, London; CP staff

The U.S. Federal Trade Commission and Department of Justice Antitrust Division’s British counterpart agency is considering steps to increase competition among three major, integrated producers following an investigation of the U.K. portland cement, GGBF slag cement, aggregate and ready mixed concrete supply chain.

While not alleging collusion or cartel-like behavior, Competition Commission (CC) officials estimate that cement market concentration among Cemex U.K. and Hanson (three plants each) and Lafarge/Tarmac (seven plants), coupled with routine business dynamics, might have cost U.K. construction interests $270 million over the 2007-2011 period. During that window, annual powder consumption in Great Britain dropped from more than 14 million to 9.3 million tons, with slight gains toward 11 million tons since.

Possible actions the Competition Commission (CC) has announced include requiring Cemex, Hanson and Lafarge/Tarmac to divest cement plants and ready mixed operations; creation of a cement buying group; prohibiting generalized price announcement letters to customers; and, restrictions on making available other information that can aid market coordination. The latter include cement market disclosures by the U.K. Government to the public or domestic producers to private sector organizations, plus recommendations to the U.K. Government/European Commission on publication of cement producers’ verified carbon dioxide emissions data under the European Union Emissions Trading Scheme.

“We have provisionally found some serious problems with the way the cement market operates in Great Britain,” says CC Deputy Chairman Martin Cave. “In a highly concentrated market where the product doesn’t vary, the established producers know too much about each other’s businesses and have concentrated on retaining their respective market shares rather than competing to the full. Strikingly, despite low demand for cement over recent years, prices and profitability for the Great Britain producers have still increased.”

The U.K. heavy building materials market is divided primarily among operators with foreign-owned parent companies or partners: Cemex, which entered the country in 2005 upon acquiring heritage operator RMC Group; Hanson, a homegrown business Germany’s Heidelberg Cement acquired in 2007; Lafarge/Tarmac, a joint venture between London mining giant Anglo American, owner of the legacy Tarmac brand, and Paris-based Lafarge Group, which gained a major U.K. foothold in 2001 by acquiring cement market leader Blue Circle Group. A fourth integrated operator, Hope Construction Materials (one cement plant), formed in January 2013 from operations the CC stipulated that Lafarge and Tarmac unload prior to consummating a 50/50 joint venture. Aggregate Industries U.K. is the fifth key player; unlike many sister operations in the portfolio of Swiss parent Holcim Group, it does not have cement production.

‘There are only four cement producers in the U.K. 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 Great Britain producers detailed awareness of how their counterparts are performing, as well as of their future pricing strategy,” contends Cave, who chaired the cement, aggregate and ready mixed concrete market inquiry. “Established information channels such as price announcement letters can signal their plans. Tit-for-tat behavior 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 … 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.”

The CC has not identified any ready mixed concrete or aggregate market problems, but provisionally finds a combination of structural and conduct features giving rise to an adverse effect on competition in portland cement and GGBF slag cement. It is scheduled to publish a final report on its inquiry by January 2014. It has opened a public comment period on provisional findings through June 12, with submission forms posted at an inquiry home page.