Displaying items by tag: Cartel

India: In one of the largest fines of its kind, India's antitrust body has imposed a penalty of a combined US$1.1bn on 11 cement companies for price fixing. The companies penalised by the Competition Commission of India (CCI) include ACC and Ambuja Cements (both units of Swiss cement-maker Holcim), UltraTech Cement, Jaiprakash Associates, India Cements, Madras Cements and the local unit of France's Lafarge.

"The commission has found that the cement companies have not utilised the available capacity, so as to reduce supplies and raise prices in times of higher demand," said the CCI in its judgement. It said that the penalty on each company amounted to 50% of their profit for the financial years 2009-10 and 2010-11.

ACC has been fined US$201m and Ambuja has to pay US$204m. India's largest producer of the building material, Ultratech Cement, has to pay US$206m, while Lafarge's Indian unit will have to shell out US$84m. Jaiprakash Associates has been fined US$232m.

On 21 June 2012 the CCI said that the cement companies' action of limiting supplies to the market through an 'anti-competitive agreement' was not only detrimental to consumers but also to the economy, as the building material is a critical input for infrastructure projects. The regulator asked the companies to pay the fine within 90 days. The companies can challenge the regulator's orders in the Competition Appellate Tribunal, a quasi-judicial body and can then appeal to India's Supreme Court.

In response UltraTech said that it hasn't indulged in any cartelisation and that it would appeal against the order in the appellate tribunal. In Zurich Holcim said it would, "contest the allegations and findings against (ACC and Ambuja) in the order and will pursue all available legal steps to defend their respective positions." In Paris Lafarge said, "We will see the detailed report and decide the suitable actions to take. Lafarge has a strict policy to comply with competition laws."

The CCI started accepting cases in 2009, replacing a relatively toothless antitrust body that had been in place since 1970, and has been becoming increasingly assertive. The biggest penalty it had imposed so far was in 2011, when it ordered DLF Ltd., India's biggest property developer by sales, to pay US$120m for abusing its dominant market position by changing agreements signed with some property buyers.

The judgement comes at a bad time for cement companies, as demand for construction materials is weak due to sluggish economic growth and a fall in spending on infrastructure projects. The cost of raw materials such as coal is on the rise as well, pressuring margins.

South Africa: The French multinational Lafarge will pay US$19.3m after it was found guilty of involvement in a cement cartel in South Africa. The Competition Tribunal confirmed that the settlement represented 6% of Lafarge's 2010 turnover in the Southern African Customs Union countries (South Africa, Botswana, Lesotho, Swaziland and Namibia). AfriSam, another of the cartel participants, previously agreed to pay an 'administrative penalty' of US$16.1m.

Last week Lafarge received a US$20m slap-in-the-face for cartel-like activity in South Africa. The case, which has been running since 2008, has investigated dealings at Lafarge, Pretoria Portland Cement, AfriSam and Natal Portland Cement-Cimpor. Yet the question remains: are cartels ever a good thing for the industry?

Back in December 2011 we covered the Common Price Agreement (CPA) in an article on cement price trends in the UK in Global Cement Magazine. This legally-approved cartel, operated by the UK Cement Makers' Federation, ran from 1934 until 1987. It was dissolved to allow UK producers to compete with cheaper foreign imports. Its supporters argued that it kept prices down in remote areas and stabilised the industry, a situation that cement buyers faced with escalating prices in Tanzania and Saudi Arabia might sympathise with this week. Despite this, prices in the UK fell after the CPA ended in 1987.

An uncited 'fact' on Wikipedia – itself a virtual monopoly on online knowledge – suggests that the median price increase achieved by cartels over the last 200 years could be 25%. Lafarge's fine represented 6% of its 2010 annual turnover in the region. Depending on how Lafarge's sales relate to its turnover this raises the possibility that even with its hefty fine Lafarge may still be in profit over the venture.

Cartels dog the cement industry given the prevalence of small groups of sellers in many markets. Throw in the current economic pressures in regions with over-capacity and the temptation must be irresistible. When one makes a link from this week's story from Pakistan about over-capacity to January's headline of 'inexplicably high' prices, the feeling occurs that Lafarge's chastening in South Africa is just the tip of the iceberg.

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South Africa: Lafarge Industries SA has admitted taking part in a cement cartel and agreed to pay a US$19.6m penalty. The company reached the settlement with the South African Competition Commission after admitting to having taken part in price fixing and market division in the cement industry. As part of the deal Lafarge agreed to pay the penalty, 6% of its 2010 annual turnover in the Southern African Customs Union (SACU) region, which covers South Africa, Botswana, Lesotho, Swaziland and Namibia.

The case, which has been running since 2008, has investigated dealings at Lafarge, Pretoria Portland Cement (PPC), AfriSam and Natal Portland Cement-Cimpor (NPC-Cimpor). Following a 2009 raid at the offices of the accused parties, PPC applied for leniency and confirmed the existence of a cartel among the four cement producers. In December 2011, an agreement was reached with Afrisam, in which it confirmed the information provided by PPC and agreed to pay a US$16.5m penalty, representing 3% of its 2010 annual turnover in the SACU region.

The commission said that it will continue to investigate NPC-Cimpor.

Mexico: Cemex Chairman and Chief Executive Lorenzo Zambrano has slammed Mexico's antitrust commission and reiterated that the company intends to appeal a fine for allegedly blocking competitors from bringing cement into Mexico. Earlier in February 2012, the Federal Competition Commission (CFC), fined Cemex US$800,000 following an investigation into a failed attempt by a competitor to import cement via a silo ship in 2004.

"We've done nothing illegal," Zambrano said, adding that Cemex used legal measures to combat, "what I personally consider was going to be contraband." Zambrano charged the CFC with having an 'attitude of vengeance,' that he said Cemex had suffered for some time. "They didn't prove anything but imposed the fine. We're going to appeal and we're going to win," he added.

The antitrust investigation followed a complaint by a group that was blocked from importing cement in Mexico from Russia in 2004. Comercio para el Desarrollo Mexicano (CDM), formed by local entrepreneurs and several foreign partners, was kept from unloading the shipment. The CFC voted 4-1 to fine Cemex for what it said was a boycott. The CFC said that it had determined that Cemex has substantial power in the wholesale market for cement, and that it systematically carried out actions to keep out imported cement, including using its influence in the cement industry chamber.

Zambrano said Cemex's share of the domestic market is below 50%, when in earlier years, after a series of acquisitions, it had been as high as 68%. "Nothing's been said about the millions of tons of cement capacity that have been installed in Mexico by our competitors," he added.

Mexico: Mexico's antitrust commission said it has fined the country's biggest cement company Cemex US$796,000 following an investigation into a failed attempt by a competitor to import cement into Mexico in 2004.

The Federal Competition Commission (CFC) said that the fine was for 'relative monopolistic practices,' which can include displacing competitors from the market.

Cemex said that it had been notified of the ruling, which it considers unfounded, and plans to contest it. "Cemex always acts in strict accordance with the law and will proceed with the legal resources that apply in this case," the company said.

The antitrust investigation followed a complaint by a group that was blocked from importing cement from Russia in 2004. Comercio para el Desarrollo Mexicano (CDM), which had been formed by local entrepreneurs and several foreign partners, was kept from unloading a 26,000t shipment, and had said it intended to import up to 0.5Mt/yr.

Saudi Arabia: More than 70 people are to be investigated in connection with the current cement crisis in Jeddah, which has seen cement become expensive and scarce since the start of 2012. Trucks owned by the accused were captured while selling cement at inflated black market prices in various parts of the city.

A special committee, formed by Jeddah Govenor Prince Mishaal bin Majed, raided about 15 warehouses where cement was being sold by foreign dealers. It is claimed that the dealers had signed agreements with contractors that were executing a number of government projects to sell them cement at high prices. "This has created an acute shortage in the quantities of cement available in the market," he added.

Prior to the commencement of the investigation, local press had reported angry crowds at points of sale and said that security forces had to intervene in some instances. Market sources believe the crisis was created by the inability of the factories to work at full capacity because they were not given enough fuel.

Abdullah Al-Ammar, a contractor, did not see any justification for the shortage. "This is an artificial crisis created by some traders who want to monopolise the cement market and stack it away in their stores, only selling it when the price goes up," he said. Al-Ammar asked the Commerce Ministry to impose harsher punitive measures against traders who were caught selling cement on the black market or hiding it. He hoped that the problem would be alleviated when two new cement factories are commissioned later in 2012.

Pakistan: The State Bank of Pakistan (SBP) has stated that "cement prices remain inexplicably high," in its State of Pakistan's Economy report published on 28 January 2012.

Expressing concerns over an increase of 17.3% in cement prices from July – November 2011 compared to the same period in the previous financial year, SBP has highlighted that this increase arose despite "a reduction on cement taxes and only a 10.7% increase in coal prices during the period."

The high prices of building materials and the strain of sales tax are expected to dent the growth of the manufacturing sector during the current financial year.

The large scale manufacturing (LSM) sector has registered growth of 2.1% in the first quarter, compared to a 2.9% decline over the same period last year. Lower duties on cement, beverages, automobiles and air conditioners have provided fiscal support to this sector according to SBP.

Yet SBP has warned that growth in the LSM sector may not be sustainable in coming months as the low base effect brought on by floods in 2011 withers away in subsequent periods.

Pakistan: The Competition Commission of Pakistan (CCP) has conducted searches and inspections at the premises of the All Pakistan Cement Manufacturers Association (APCMA) and Kohat Cement in Lahore under Section 34 of the Competition Act 2010. It said that it carried out the searches to look for proof of suspected cartelisation in the cement sector.

According to a statement issued by the CCP, it had obtained information from an informant that contained copies of certain e-mails that had been sent by the Secretary of APCMA to cement manufacturers. The contents of the e-mails provided by the informant revealed that the cement manufactures had prima facie collectively devised a vigilance plan by which the cement dispatches at one cement production unit are monitored by a team of another unit and vice versa.

Such monitoring of cement dispatches was previously recognised as an integral part of a collusive arrangement among the cement manufacturers. The CCP has declared such arrangements to be in violation of Section 4 of the Competition Act 2010. It imposed a penalty of nearly US$700m on the APCMA and its members. This matter has been taken to court and is still pending.

The fresh probe by CCP was based on a separate set of facts that suggested that the cement manufacturers have again formed a collusive arrangement and to ensure compliance the monitoring function is being performed by cement manufacturers themselves under the auspices of APCMA. When the CCP search and inspection team arrived at the APCMA premises, it discovered that the APCMA secretary was not present in the office and all the records were locked. After initial hesitation the APCMA allowed the CCP to access the data. A search and inspection was also carried out at of the office of the APCMA President, who is also the Chief Executive of Kohat Cement.

Local media has long speculated that cartelisation was in place in the cement sector based on rapid cement price increases in recent months. Pakistan's cement capacity utilisation also dropped to a 10-year low of 69.7% in the six months to 31 December 2011. "The expected turn around in the economy did not materialise because the capacity of the sector continued to increase," said a spokesman from the APCMA, commenting before the CCP inspections were made. He said that expansions in the cement sector had been planned several years ago when the economy had been in a far better situation.

Spain: Spain's competition watchdog CNC has imposed a fine of Euro11.1m on five cement companies, namely Cementos Portland, Beriain, Cetya, Vresa and Cemex España, which have been accused of setting up a cartel in northern Spain.

Cementos Portland was ordered to pay Euro5.72m, followed by Beriain with a Euro2.5m fine. Next came Cetya and Vresa with fines of Euro1.14m and Euro0.96m respectively. Cemex España will be forced to forfeit Euro0.5m.