Chief Executive's Upfront
Commerce Commission Residential Building Supplies Market Study

Late last week the Commerce Commission released its draft report for the residential building supplies market study.

Rob Gaimster, Chief Executive

Concrete NZ’s first impressions of the draft report are favourable:

• The recommendation for a national building products register as part of improving decision-making processes is sensible, as is making information about materials more accessible across the industry.
• The recommendation to improve the efficient functioning of the regulatory system is sound, and Concrete NZ supports competition being promoted as a key objective in the built environment.
• The recommendation to remove impediments for product substitution makes sense, but some caution is needed. It should not allow products that may not perform as part of a specific design for an approved building system - such as a wall with associated fire, moisture, bracing or acoustic characteristics.
• The system to get new products certified and appraised is too expensive.

In terms of cement and concrete, the Commission’s preliminary view is that there appears to be a reasonable level of competition occurring for both materials, although there are some elements of markets which could be better.

STUDY SCOPE
The Commission’s study considered factors that may influence competition around building supplies used to construct the major components of residential buildings, this covered:

• the industry structure for key building supplies,
• the nature of competition for these key building supplies; and
• barriers to the entry or expansion of new or innovative building supplies.

The study also took a detailed look into three key building supplies as case studies - concrete (including cement), plasterboard and structural timber.

CONCRETE (& CEMENT)
The cement and concrete case study, including the Commission’s preliminary view is that there appears to be a reasonable level of competition occurring for both materials, appears in the draft report as Attachment D.

Regarding cement, the Commission’s view is supported by the following findings:

• a new cement supplier entered the market in 2012, and now supplies between 5% and 10% of the market,
• price competition appears to be strong, driven by this new entrant, and a large player increasing its capacity,
• firms are responding to customer demand by innovating to introduce low-embodied carbon products to the New Zealand market; and
• customers of cement suppliers appear to be generally satisfied with the level of service and quality of product they receive.

Regarding ready-mix concrete, the Commission's view is supported by the following findings:

• the threat of losing customers and/or market share constrains larger firms’ ability to impose price increases,
• customers appear to have the ability to switch between suppliers (and often do),
• many ready-mix concrete producers have entered the market in recent years,
• these producers appear to provide a competitive restraint at a local level; and
• firms are innovating to develop low-carbon products to win customers.

Other key takeaways from the draft report worth highlighting are that the price of ready-mix concrete has increased more slowly than other residential construction costs, and that cement prices have reduced in real terms over the past 10 years driven by competitive dynamics.

The draft report also looked at other factors that may be affecting competition for cement and concrete – such as the industry structure, nature of competition, pricing practices or acquisition requirements, as well as strategic, behavioural or regulatory barriers to entry or expansion.

The full draft report and other related documents are available on the Commerce Commission’s website.

NEXT STEPS
As we did with the Commission’s initial discussion document, Concrete NZ will provide feedback on the preliminary findings and draft recommendations which reflects our members’ position. This will be available on the Concrete NZ website, alongside our other submissions.

If you have any comments or questions you would like to share with Concrete NZ, please don’t hesitate to reach out.