CC puts brakes on Anglo American and Lafarge construction joint venture

Posted on 21 Feb 2012 by Tim Brown

The Competition Commission (CC) has decided provisionally that the proposed UK joint venture between Anglo American  and Lafarge S.A. could damage competition in certain markets for construction materials.

Anglo American, through its UK subsidiary Tarmac, and Lafarge want to establish a 50:50 joint venture in the UK,  to which each of them would contribute the bulk of their construction materials businesses in the UK.

The two parties’ main overlapping activities in relation to the joint venture are in the produc-tion and supply of cement, aggregates, asphalt and ready mix concrete (RMX). Cement and aggregates are the key ingredients of RMX. As well as being used in the construction of roads and buildings, aggregates can be used in the production of asphalt and in specialist applications such as rail ballast and high purity limestone used for its chemical properties.

In a summary of its provisional findings report published today, the CC has concluded that the joint venture could lead to a substantial lessening of competition (SLC) in the markets for:

  • the supply of bulk cement;
  • the supply of rail ballast;
  • the supply of high purity limestone, when used for flue gas desulphurization (the abatement of acid gas emissions from coal-fired power stations);
  • the supply of primary aggregates for construction applications in 23 local markets;
  • the supply of asphalt in two local markets; and
  • the supply of RMX in seven local markets.

Chairman of the Anglo/Lafarge Inquiry Group, Roger Witcomb, said that there were a number of concerns but that a key problem was the small number of producers in the market.

In a statement the Inquiry said: “In bulk cement there are currently only four UK producers, and there is evidence that the market is not as competitive as it could be. Prices and profit margins haven’t been affected in the way we would have expected following the big falls in the demand for cement in the past few years. We have not reached a view on whether or not there has been coordination in the bulk cement market.

“But we are concerned that the proposed tie-up would increase the susceptibility of this market to coordination. Some of the reasons for this arise from the proposed combination of the cement businesses and some from the increased vertical integration that would result from the combination of their RMX businesses. Lafarge currently has a relatively small RMX business, while Tarmac has a relatively large one.”

According to the inquiry, the tie-up could also reduce competition for two specific aggregates products – rail ballast and high purity limestone used for flue gas desulphurisation – similarly because of the shortage of alternative suppliers.