BCA: Cement supplies and prices – the facts

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Wednesday, 11, Jul 2007 12:00

‘Unfounded, without substance and just plain wrong’ was how Mike Gilbert, Chief Executive of the British Cement Association described the suggestions put forward by the British Aggregates Association (BAA) of possible anti-competitive behaviour in the cement industry.

Mr Gilbert went on to say ‘it is disappointing that the BAA have opted to continue this programme of innuendo with their agents Cartel Damage Claims (CDC). We are not surprised that they have yet to reach any firm conclusions, as the BCA has absolutely no evidence that the cement market is functioning anything other than properly. If BAA had drawn its members concerns to us directly, we would have reviewed the following facts.

The facts are:

Demand

• Long term demand for cement has been rising steadily at around 1% a year; growth in 2007 is forecast at 1-1.5%

• Demand in Q4 2006 pushed up sales by 5%, at a time when cement producers are normally able to build up stocks in preparation for planned annual maintenance shutdowns which take place in Q1 - a period of traditionally low demand

• Strong demand has continued into 2007, with domestic consumption of cement in May up 12% on last year. This followed a 5% increase in demand in April 07. One BCA member reports demand in the South East rising by 14% in Q1 and by 10% alone in April

• Market reports indicate that mild weather conditions have fuelled the sudden increase in demand for BCA member’s products. Added to this has been a reduction in the availability of slag, with a consequent increase in demand for cement for use in concrete. This has resulted in an ‘overnight’ surge in demand for cement while demand for concrete appears not to have risen so sharply

Supply

• Since 2003, UK cement industry production capacity has increased by an additional 1 million tonnes per annum, up to 12.5 million tonnes, a rise of 8%.

• In 2006, BCA members produced their highest volume of cement since 2001

• Despite annual maintenance shutdowns and unforeseen production problems, BCA members produced more cement in Q4 2006 and Q1 2007 than for the corresponding periods in 2004, 2005 and 2006

• To supplement domestic production, BCA members have imported more product, equivalent to around 3% of production, from a European market itself experiencing strong demand for cement

• Cement sales in Q4 2006 and Q1 2007 exceeded cement production for these periods (Q4 06 production was 2,851,000 against sales of 2,945000, Q1 2007 production was 2,678,000 against sales of 3,009,000)

Investment and Pricing

• The UK cement industry has invested around £200 million pounds in plant improvement and increased capacity in the last three years, with more to come

• Energy represents over 35% of the cost of cement manufacture. The considerable rise in energy costs in recent years has had a significant impact on the cement industry

• Pricing policy is a matter for individual companies

• Prices are determined by market forces and can be affected by local, regional, national and international circumstances.

• Over the last 10 years average UK cement prices have risen below the rate of inflation and they are in line with the average increase in material prices in the year to March 2007

• On average, material prices in the UK rose by 7.7% in the year to March 2007. The price of some other competing materials have risen more sharply, e.g. structural steel prices have risen by 11%

• Price calculations in other parts of Europe, such as Germany, are based on factory gate as opposed to in the UK where they are based on delivered prices which is often a cause for misunderstanding when making comparisons between countries

• International and other national cement prices do not reflect UK operating conditions, costs and investment programmes.

BCA members are acutely aware of the requirements of their customers and following the reported shortages earlier in the year are working closely with them to ensure their needs are met. All production facilities are operating to maximise supply to the market.’

Notes to editors:

The British Cement Association (BCA) is the trade and research organisation that represents the interests of the United Kingdom’s cement industry in its relations with Her Majesty’s Government, the European Union and relevant organisations in the United Kingdom. The members of the BCA (Tarmac Buxton Lime and Cement, Castle Cement, Cemex UK Operations and Lafarge Cement UK) are the major domestic manufacturers of Portland cement producing over 90% of the cement sold in the UK.

The cement industry has an annual turnover of £775 million and is a major supplier to the construction industry. It employs around 3,400 people directly with a further 15,000 jobs depending upon its operations.

Attached to this press release is an updated economic briefing note.

BAA issued a press release on 19 March announcing that it had brought in a specialist firm, Cartel Damage Claims, to investigate claims that the UK cement market is not operating properly.

BCA issued a response to the BAA statement on 21 March.