WIREDGOV

The OFT has yesterday published its market study into aggregates, cement and ready-mix concrete. It proposes to refer the sectors to the Competition Commission for more detailed investigation.

These sectors had a combined turnover in 2009 of up to £3.4bn and are vital inputs in the construction sector, which represents seven per cent of UK GDP. Some 40 per cent of construction expenditure is in the public sector, for schools, hospitals, roads and other physical and social infrastructure, with central Government being the biggest customer.

In its study the OFT identified a number of features of the 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: five major players account for over 90 per cent of the cement market, 75 per cent of aggregates sales and 68 per cent of ready-mix production.
• The effects of vertical integration: the major firms are integrated across aggregates, ready-mix concrete and cement. We have received complaints about vertically integrated 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-mix concrete prices, affecting independents which both buy cement from vertically-integrated majors and compete against them in the ready-mix concrete market.

John Fingleton, OFT Chief Executive, said:

'More than ever, well-functioning markets are crucial to economic growth. Aggregates, ready-mix 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. Lack of effective competition not only affects the public sector and business customers but ultimately leads to higher prices for consumers too.

'As a result we are proposing to refer these sectors to the Competition Commission for further investigation.'

The OFT will now consult until 30 September 2011 on its proposal to refer the market to the Competition Commission. It will be speaking with key parties directly. Others who wish to make a submission should send their written views to: aggregates@oft.gsi.gov.uk or alternatively by writing to:

Aggregates Market Study
Office of Fair Trading
Level 4, Fleetbank House
2 - 6 Salisbury Square
London
EC4Y 8JX

Read the OFT's Aggregates market study.

1. Statistics used in this press release are from the Government Construction Strategy, May 2011.
2. Aggregates are the granular raw materials used in construction products. Aggregates broadly come from three sources:
   
   - primary aggregates, which are rocks, sand and gravel newly extracted from the ground or sea bed
   - secondary aggregates, which are the by-product of the extraction of other materials or a manufacturing process, (such as china clay waste, power station ash, or steel slag)
   - recycled aggregates, which are produced from crushed demolition waste.
3. Cement is a fine powder that acts as a binder. Cement is mainly used for producing concrete, by mixing it with aggregates and water, but it can also be used to manufacture mortar for bonding bricks. 
4. Ready mixed concrete is a mixture of coarse and fine aggregates, cement and water. It is delivered wet and can be moulded into any form. It is the most common form of concrete and is highly versatile lending itself to a wide range of applications in the construction of buildings, roads and other infrastructure. 
5. The OFT launched the market study into Aggregates in September 2010. See press release OFT launches market study into aggregates.
6. OFT market studies are carried out under section 5 of the Enterprise  Act 2002 (EA02) which allows a market-wide consideration of both competition and consumer issues. Market studies involve an analysis of a particular market with the aim of identifying and addressing any aspects of market failure from competition issues to consumer detriment and the effect of government regulations. Possible results of market studies include enforcement action by the OFT; a reference of the market to the Competition Commission; recommendations for changes in laws and regulations; recommendations to regulators, self-regulatory bodies and others to consider changes to their rules; campaigns to promote consumer education and awareness; or a clean bill of health.
7. Under section 131 of the EA02, the OFT may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or a part of the UK.