United Kingdom - Building Materials Sector Faces Competition Probe

26 Aug 2011 • by Natalie Aster

The UK's major building materials firms will be bracing themselves for further bad news following the announcement that the UK's Office of Fair Trading (OFT) has asked the Competition Commission to investigate the sector. The announcement comes amid stubbornly challenging times for the industry, as domestic construction activity remains subdued and producer margins continue to be squeezed by elevated costs. With demand depressed and with a market dominated by a handful of large players, the news highlights the difficulties facing small- and medium-sized players and the scope for consolidation.

With five companies accounting for over 90% of the cement market and 75% of aggregate sales, the OFT has deemed it necessary to investigate the building materials market over concerns that high barriers to entry and information sharing between companies has created uncompetitive conditions. The watchdog has intimated that the lack of effective competition may have raised the cost of building materials in the UK, thereby adding to the woes already facing the UK's depressed construction sector.

Challenging Conditions
UK Construction Industry Value, Real Growth (%)

f=forecast, Source: BMI, ONS/UK Blue Book/BMI

The sector is dominated by the five majors companies: Lafarge, Holcim, Heidelberg, Cemex and Anglo American's UK cement arm Tarmac. As BMI has previously noted, the combination of anaemic construction sector growth combined with elevated costs (notably energy) has squeezed the operating margins of building materials firms with heavy exposure to European and North American markets. This has sparked a trend of divesting non-core assets among larger firms, as well as increasing the likelihood of consolidation, as smaller, individual companies find it increasingly difficult to maintain profitability.

Indeed, fears of unfair competition were further intensified in February 2011, following an announced tie up between Tarmac and Lafarge. However, the tie up, which would reduce yet further the number of players in the market, is still awaiting the all clear from the OFT.

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