California cement plant deal spotlights feds’ misdirected market concentration concerns

by Don Marsh

Through direct action or implication of costly, prolonged legal measures, the Federal Trade Commission has helped quell a second cement plant sale in as many years. In 2021, the agency challenged the proposed sale of Giant Cement Holdings’ Keystone Cement mill in Bath, Pa. to Heidelberg Materials, then operating as Lehigh Hanson Inc. FTC officials cited concerns of market concentration in eastern Pennsylvania and western New Jersey counties. Ahead of a formal administrative trial to examine that claim, the parties walked away from the transaction. 

Likely feeling the weight of presumptions in an FTC Mergers Office and Bureau of Economics investigation, CalPortland Co. and Martin Marietta Materials have repeated the Keystone Cement example. The producers recently scrapped an agreement under which CalPortland would acquire Martin Marietta’s Tehachapi cement plant near California’s Central Valley. The 1 million ton/year mill accompanied the Lehigh Hanson West Region operations acquired in 2021. 

The Tehachapi plant deal would no doubt have elevated CalPortland’s already impressive Golden State cement capacity profile: Three plants, 4 million-plus-tpy capacity. Much less certain is the extent to which it would have impacted concrete customers from the Central Valley to the Los Angeles Basin. 

Erring on the side of questionable caution, the federal government saw otherwise. “The transaction would have reduced the number of cement suppliers in southern California from five to four, further concentrating an already concentrated market, and was presumptively illegal. The abandonment preserves competition for a key component of southern California’s construction and infrastructure industries,” FTC Bureau of Competition Director Holly Vedova noted in a statement following announcement of CalPortland’s decision to vacate the Tehachapi purchase agreement. 

If the deal had been consummated, the agency argued, CalPortland would have owned half of the cement plants serving southern California. So what? FTC observations ignore domestic capacity and import terminal math indicated in the North American Cement Directory, an annual offering from our sister publication, Cement Products. The Tehachapi mill stood to contribute a certain level of back up to CalPortland’s two other operations serving southern California: Oro Grande, 2 million tpy and Mojave, 1.65 million tpy. The remaining cement plants that FTC investigators presumably factored into their southern California market survey are Cemex USA, Victorville, 3.2 million tpy; Mitsubishi Cement Corp., Lucerne Valley, 1.8 million tpy; and, National Cement Company of California, Lebec, 1.6 million tpy. Ports of Long Beach and San Diego import terminals add to the market’s cement supply chain.

The FTC Bureaus of Competition and Economics are respectively tasked with “promot[ing] competition and protect[ing] consumers’ freedom to choose goods and services in an open marketplace” and “analyz[ing] the impact of government regulation on competition.” If it truly wants to promote competition and gauge how regulation—local and state permitting included—distorts markets, the agency might want to look at two stalled projects that would give southern and northern California concrete producers and their customers greater access to more cementitious materials: A Mitsubishi Cement bulk warehouse on a Port of San Diego parcel and an Ecocem slag cement finishing mill along the San Francisco Bay. 

Despite sound economic and environmental value propositions, both projects have faced obstacles from state and local private or public interests. When such forces result in less competition and higher market concentration, the FTC should think twice about interfering in deals between companies that have a long history of playing by the rules. There are plenty of markets where concrete producers have fewer cement and cementitious material supplier choices than their California, Pennsylvania and New Jersey counterparts.