Watchdog orders creation of a fifth player after two-year investigation finds lack of ‘well-functioning market’

Two of the UK’s biggest cement companies will be forced to sell facilities after the UK’s competition watchdog found that the four biggest companies’ grip on the market is costing consumers £50m a year.

The Competition Commission (CC) ordered the creation of a fifth entrant into the cement market on Tuesday, ordering Lafarge Tarmac and Hanson to sell off plants.

The CC’s two year investigation found that “both structure and conduct in the cement sector restrict competition by aiding coordination between the three largest producers (Lafarge Tarmac, Cemex and Hanson), which results in higher prices for all cement users”.

It said that despite a slowdown in construction levels during the economic downturn, the cement companies’ profitabilty and market shares had remained stable.

“These three producers have refrained from competing vigorously with each other by focusing on maintaining market stability and their respective shares,” the watchdog said.

The fourth member of the market, HCM, was established a year ago under the CC’s orders after the UK business of France’s Lafarge and Anglo American-owned Tarmac merged.

A spokesman for the watchdog said the market issues existed before the merger, so the market was uncompetitive even with a new player in HCM.

There were fears that the economic recovery could be curtailed by the high cost of cement, with demand picking up.

The CC has ordered Lafarge Tarmac to sell one of its cement plants in either Cauldon, Staffordshire or Tunstead, Derbyshire. Hanson will also have to sell one of its facilities that produces ground granulated blast furnace slag (GGBS), a substitute for cement.

New restrictions on publishing data and on price announcements to suppliers will also come into force.

It said that the lack of cement competition was costing customers at least £30m a year and more in future as demand picks up, and £15m-£20m a year for GGBS.

It is believed the process could take around 18 months, although an appeal from the cement manufacturers is likely.

“We believe that the entry of a new, independent cement producer is the only way to disturb the established structure and behaviour in this market which has persisted for a number of years and led to higher prices for customers,” said Martin Cave, who chaired the inquiry.

“Despite falling demand and increasing costs during the last few years, profitability among GB producers has been sustained and their respective markets shares have changed little. This is not what you would expect to see in a well-functioning market, under these circumstances.”

Lafarge shares were down 1.3pc in France in early trading.