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The Competition Commission (CC) is opening the way for a fifth cement producer in Great Britain in order to increase competition in the market.

Additionally, the CC is looking to increase competition in the supply chain for ground granulated blast furnace slag (GGBS-a partial substitute for and input into cement) by requiring Hanson to sell one of its GGBS production facilities.

The measures follow a two-year investigation, which has found that both structure and conduct in the cement sector restrict competition by aiding coordination between the three largest producers (Lafarge Tarmac, Cemex and Hanson) which results in higher prices for all cement users. These three producers have refrained from competing vigorously with each other by focusing on maintaining market stability and their respective shares.

The CC has also identified competition problems resulting from there being only one domestic producer of GGBS in GB (Hanson) with exclusive rights to use the output of Lafarge Tarmac, the single domestic producer of granulated blast furnace slag (GBS), which is the main raw material input into GGBS.

The CC estimates that higher prices resulting from this lack of competition cost customers at least £30 million a year and probably more in the future for cement, and a further £15-£20 million a year for GGBS. The CC believes that without its intervention, this situation would persist for many years to come.

The CC has not identified any problems with the markets for aggregates or RMX.

The final report follows the publication of the CC’s provisional findings in May last year and an Addendum to the provisional findings and its provisional decision on remedies in October.

Professor Martin Cave, CC Deputy Chairman and Chairman of the Inquiry Group, said:

‘We believe that the entry of a new, independent cement producer is the only way to disturb the established structure and behaviour in this market which has persisted for a number of years and led to higher prices for customers.

‘Despite falling demand and increasing costs during the last few years, profitability among GB producers has been sustained and their respective markets shares have changed little. This is not what you would expect to see in a well-functioning market, under these circumstances.

‘The problem in relation to GGBS stems from there being only one domestic producer (Hanson) which again leads to higher prices for customers.

‘Cement is an essential product for the construction and building sectors and the amount of such work that is funded by the public purse only underlines the importance of ensuring that customers get better value for money. We believe our measures can bring about a substantial, swift and lasting increase in competition in this economically vital market.’

A summary of the remedies is as follows:

• Lafarge Tarmac will be required to choose between divesting either its Cauldon or its Tunstead cement plant. The purchaser of the divested cement plant will be able to acquire a limited number of RMX plants from Lafarge Tarmac subject to the purchaser’s total internal cementitious requirement being capped at 15 per cent of the acquired cement production capacity. The buyer would have to be approved by the CC and cannot be one of GB’s existing cement producers.
• Restrictions on the publication of GB cement market data. Publication of data on cement production will be required to be delayed by at least three months from the time period to which it refers.
• GB cement suppliers will be prohibited from sending generic price announcement letters to their customers. Instead, any future price announcement letters will have to be specific and relevant to the customers receiving them.
• Hanson will be required to divest one of its GGBS production facilities and Lafarge Tarmac will be required to enter into a long-term agreement to supply GBS to the acquirer of the GGBS production facility. The buyer will have to be approved by the CC and cannot be a GB cement producer.

Aggregates are the granular base materials used in the construction of roads, buildings and other infrastructure. Cement is the ‘glue’ that binds together the components of building materials. Among other uses, cement is mixed with aggregates and water to produce RMX. RMX is concrete that is produced in a freshly mixed and unhardened state. RMX is manufactured from cement, aggregates, water and other additives (including GGBS) as necessary. GGBS is produced by grinding GBS, the material produced by water-cooling of the slag emerging from iron blast furnaces.

There are five major producers of heavy building materials in GB: Aggregate Industries, Cemex, Hanson, HCM and Lafarge Tarmac. HCM is a new firm established in January 2013 after it bought cement, aggregates and RMX assets which the CC had required Anglo American (the owner of Tarmac) and Lafarge to divest following an inquiry into the Anglo American/Lafarge joint venture in 2012. Aggregate Industries does not produce cement in the UK but all five have significant RMX operations.

The final report is available on the investigation home page along with all other information on the investigation.

Notes for editors

1. The CC is an independent public body, which carries out investigations into mergers, markets and the regulated industries.

2. The Office of Fair Trading (OFT) referred the market to the CC for investigation in January 2012. The CC was required to carry out its own comprehensive investigation, to see if there are any features of this market which prevent, restrict or distort competition and, if so, what action might be taken to remedy them. The OFT decided against referring the markets in Northern Ireland for investigation.

3. The members of the aggregates market investigation group are: Professor Martin Cave (Chairman of the Inquiry Group), Roger Davis, Phil Evans, Professor Thomas Hoehn and Malcolm Nicholson.

4. Under the Enterprise Act 2002, the OFT can make a market investigation reference to the CC if it has reasonable grounds for suspecting that competition for the supply or acquisition of certain goods or services is not working effectively.

5. Investigations of cartel activity or explicit collusion among businesses are carried out by the OFT under the Competition Act 1998. The CC does not have powers to conduct these types of investigations.

6. Enquiries should be directed to Rory Taylor or Siobhan Allen or by ringing 020 7271 0242.