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November 11, 2013 7:15 am
Two of the world’s biggest cement companies have threatened Britain’s Competition Commission with a legal challenge after accusing the watchdog of denying them “basic consultation rights” during an investigation into the building material markets.
Lafarge Tarmac, the UK joint venture of the French-listed cement company, and HeidelbergCement’s Hanson, based in Germany, both believe the watchdog failed to properly consult materials suppliers when it carried out its investigation into the industry, which includes aggregates, asphalt and ready-mix concrete.
The appeals mark an escalation of the cement makers’ fight with the regulator following a long-running investigation into the building materials industry.
The two companies filed separate appeals against the Competition Commission last week but are willing to take their fight to the courts, according to people close to the situation.
Lafarge Tarmac said the Competition Commission refused “to remedy the multiple and grave procedural defects” with the initial decision.
David Weeks, Hanson’s communications director, said: “We believe the investigation . . . has been seriously undermined by the Competition Commission’s failure to consult properly on the key issues. We have raised our concerns about this denial of our basic consultation rights on several occasions, but been ignored.”
After successive waves of consolidation the building materials industry in the UK is dominated by just four large companies – Lafarge Tarmac, Holcim, Mexico’s Cemex, and Hanson – down from nine listed producers in the late 1990s.
The Competition Commission said in May that concentrating so much power in so few hands was costing the construction industry £36m a year, and warned that one of the big four would need to offload assets to create a new entrant.
This was confirmed in October when the watchdog said Lafarge Tarmac would have to choose whether to sell the Cauldon cement works in Staffordshire or Tunstead in Derbyshire. It is also looking to increase competition in the supply chain for ground granulated blast furnace slag – a partial substitute for cement – by ordering the sale of production facilities. The move was almost unprecedented in explicitly looking to create a new entrant to the market.
Ian Osburn, analyst at Cantor Fitzgerald, said he believed Lafarge had a potential case against the watchdog’s findings as well as the procedure.
“It raises the question of why the CC is trying to take assets off Lafarge Tarmac to solve an issue it thinks it has found in the wider industry, especially as those assets are in the Midlands where all of the major cement producers are present.”
With the construction industry in the UK finally braced for pick-up, Lafarge will be hurt by any sale. The company had already been forced to sell its £272m Hope cement plant in Derbyshire to Lakshmi Mittal, the steel magnate, as a condition of its creation last year by the merger of the UK operations of Anglo American and Lafarge. The French-based company said it was disappointed with the findings.
The industry, which includes aggregates, asphalt and ready-mix concrete, is perennially under the eye of the competition authorities. This is often due to allegations of price co-ordination or market collusion. Separate investigations into price-fixing are under way in Ireland, Hungary, Belgium, Brazil, South Korea, India and Egypt.
In the UK, the investigation is into the workings of the materials market with no suspected price fixing.
Mr Osburn said: “It’s a difficult industry to regulate. What looks like skewed competition can often be all producers just looking for a sustainable return on capital in what is an expensive business to be in. We’ve seen notable examples of competition regulators misunderstanding that.”
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