Europe / Middle East / Africa
The Concrete Business
Feb, 23 2012
OF ALL the British businesses that once ruled the world, cement-making is hardly the most glamorous. But, mixed with sand and other aggregates to make concrete, it provided the foundations for Victorian-era industrial expansion and empire-building. Portland cement, the sort most widely used today, is a British invention. And Andrew Bloodworth of the British Geological Survey reckons aggregates are still the country’s biggest primary industry—in terms of weight, not value.
But it is cracking. In 2011 cement production fell to 9m tonnes, 30% down from its pre-crisis peak in 2007. A slowdown in the domestic construction industry is the main reason, but foreign trade has collapsed too. Until the early 1980s Britain exported over 1m tonnes of cement a year. Manufacturers in cheaper countries have taken that business.
Costs have surged. Some 40% of the industry’s outlay is on energy: limestone has to be heated to a high temperature to turn it into cement. Although the industry has moved to burning tyres and other industrial waste, it still also uses plenty of coal, the price of which has soared in recent years. European emissions regulations raise costs further for an industry that generates huge amounts of carbon dioxide.
These days the domestic market is dominated by five large foreign firms that account for 90% of the trade. France’s Lafarge is the biggest. The others are Tarmac, owned by Anglo American; Mexico’s Cemex; Hanson, part of Germany’s HeidelbergCement; and Holcim, a Swiss company. The industry has consolidated enthusiastically: since 2004 competition watchdogs have waved through six big deals. But on February 21st the Competition Commission objected to a proposed joint venture between the British businesses of Lafarge and Tarmac, saying it could raise the risk of price co-ordination.
Bigger is better in capital-intensive cement-making. There are just 11 cement works in the country, almost all located near vast limestone quarries. The big firms have also come to dominate the supply of sand and other aggregates.
But, as this week’s decision by the Competition Commission shows, attitudes to consolidation are hardening. Watchdogs fear that high barriers to entry (a new cement plant might cost £200m, or $315m), vertical integration of aggregates and cement, and the dominant position of the big five firms are damaging competition. Last month, after a long investigation, the Office of Fair Trading asked the Competition Commission to scrutinise the entire industry. The government has good reason to worry about whether the market is rigged. Two-fifths of Britain’s cement and concrete goes into roads, schools, hospitals and other infrastructure, making the state the industry’s biggest customer.
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