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OFT proposes investigation of aggregates and cement markets

The Office of Fair Trading (OFT) has launched a consultation on proposals to refer the aggregates, cement and ready-mix concrete sectors to the Competition Commission for investigation.

The consultation follows an OFT market study into the three sectors, which identified five multinational companies, including Lafarge and Cemex, accounting for the “majority of sales in these markets”.

The study found that the industry displays a number of features which “may adversely affect competition” including:

  • High barriers to entry to the aggregates and cement sectors, in terms of the difficulty in obtaining planning permission. The planning system for aggregates in particular was found to create “substantial barriers to entry by favouring incumbents over new entrants”.
  • A high concentration of major players in all three markets, and a “considerable drop in scale” between these companies and the next largest independent in each market.
  • Multiple contacts and information exchanges across the markets, with major firms supplying each other with aggregates and cement, and engaging in joint ventures and asset swaps.

OFT chief executive John Fingleton said: “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.”

A Cemex UK spokesman said the company was “disappointed” with the news.

He said: “We will review the findings of the OFT study carefully during the consultation period, with a view to responding within the given time frame. Cemex operates to the highest ethical standards, welcomes and respects fair competition and will co-operate fully if there is a referral to the Competition Commission.”

A spokesman for Lafarge said: “We will continue to co-operate fully with the relevant regulatory authorities. We believe that the UK markets considered by the OFT are competitive and deliver strong efficiencies for the benefit of consumers.”

The OFT consultation on proposals to refer the market to the Commission will run until 30 September 2011.

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