Competition watchdog to turn spotlight on construction sector, South Africa

Competition watchdog to turn spotlight on construction sector, South Africa
19 October 2007

The competition commission will assess anti-competitive behaviour in specific construction markets and possibly launch a formal investigation into the sector.  
This emerged at a competition commission bid-rigging workshop yesterday.  
It became apparent the commission had received at least one application for corporate leniency following an initial overview of competition concerns in the sector.  
The commission’s corporate leniency policy offers total or partial immunity to cartel members that assist in identifying and prosecuting cartels.  
Simon Roberts, chief economist at the commission, said it had assessed the major building materials and products because of the high rates of price increases, recent international bid-rigging and cartel cases, and South Africa’s major infrastructure investment programme.  
This assessment revealed that the price of materials used in building and construction had increased by 80 percent over the past seven years.  
This was compared with the rise in the producer price index (PPI) of 60 percent for all commodities in the same period. 
Stock and face bricks, sand, aggregates, ordinary and extended cement, retail cement, reinforcing steel, sheet and galvanised steel, tin plate and steel tubes, pipes and fittings were identified as the “big products of concern” because of price increases consistently above PPI inflation.  
Roberts said the price of bricks had consistently increased each year by between 10 percent and 12 percent.  
Reinforcing steel prices had increased by 120 percent, while the price of cement had almost doubled. “There have been consistently high rates of price increases in many products,” Roberts said.  
“This is inflating the cost of the public infrastructure programme. It impacts on private investment, including residential housing, and the high prices of inputs impact negatively on the competitiveness of firms fabricating further value-added products where South Africa could be competitive.”  
David Matlou, the president of the SA Clay Brick Association, said a good deal of clay brick production was family owned but the industry tended to be very price competitive.  
Price increases reflected demand but there had been a lot of volatility in pricing in the past three or four months because of the interest rate hikes, which had reduced demand and left producers sitting with excess stock, he said.  
John Gomersall, the chief executive of listed cement and lime producer  Pretoria Portland Cement, said returns from the industry were previously unacceptable, capacity was not being used and cement was “the ultimate commodity”, because there was demand power, not supplier power. 
Gomersall said producers needed to justify their expenditure. The only reason a new producer was entering the local market was because of the prevailing cement prices and there were acceptable returns to be made. 

Gomersall confirmed that cement price inflation had been higher than PPI inflation but stressed that the average rail cost increase on cement going out to customers from next year was 13 percent. 
“For the past two years, industry statistics show that only 1 percent of the cement going out from the industry to customers was by rail, because rail cannot compete with road [transport],” he said.  
“These things come and go in cycles, from excess capacity to excessive demand. It will swing again as demand cools,” said Gomersall.  
Published under Cement News