Editor's Desk

Bricks sector gets ACCC green light

The Australian Competition and Consumer Commission (ACCC) stated it had concluded inquiries into the sector in a letter addressed to Federal Minister for Small Business Bruce Billson. The letter accompanied its latest quarterly report to the Minister on the activities it had undertaken to ensure industry had reduced prices to reflect the carbon tax repeal, which occurred in July 2014.

The March 2015 report noted that while the construction material manufacturing sector was not subject to the “rigorous legislative regime” that was imposed upon industries such as natural gas and electricity, the ACCC still needed to ensure businesses within this sector were not making false or misleading representations about the effect of the carbon tax repeal on their prices.

The regulator specifically monitored the activities of two brick manufacturers, Brickworks and Boral, to draw its conclusions on this matter.

Bricks sector scrutinised

The ACCC report stated that Brickworks was investigated because it was unclear whether the price hike it implemented immediately prior to the introduction of the carbon tax contained components that should be removed post-repeal.

However, given the price increase resulted in significantly lower sales volumes – and thus, revenue – for the business, and furthermore did not cover its carbon tax costs, Brickworks claimed its prices did not contain any carbon tax components. The business also pointed out that compared to the increases in other non-carbon tax related costs – such as for energy, wages and fuel – the carbon tax and its repeal had had relatively little impact on its overall costs and profitability.

“Over the life of the carbon tax, [Brickworks’] prices and sales volume both rose, but not sufficiently to cover decreases in profitability which occurred in previous years,” the report stated. “Brickworks continues to be concerned about the long-term viability of its business, and to focus on the long-term task of margin repair.”

Boral also came under scrutiny as the ACCC was not clear on whether its bricks business had passed on all repeal-related cost savings to its customers, but the company argued it would not have been “reasonable or sustainable” to reduce its listed prices to reflect the resultant “minor” savings.

Mounting pressure

The report acknowledged that Boral’s claim was consistent with other information the ACCC had received, which indicated prices would have risen regardless, but that the repeal had resulted in a slight moderation of the inevitable increase.

Additionally, the report recognised that the brick industry had been undergoing a “long-term shift in demand” due to a move towards multi-residential dwellings. “[This] has placed pressure on the returns that brick manufacturers have been able to achieve,” it stated.

The challenges currently facing brick manufacturers was recently emphasised by the formation of a Boral/CSR joint venture, which combined the two suppliers’ east coast operations in order to reduce costs that may otherwise have forced Boral out of the eastern Australian clay brick manufacturing sector.

“Savings from the carbon tax repeal have offset rises in other costs, as well as price rises caused by rising demand for some construction materials,” the report concluded. “In light of the further information received from these entities, the ACCC is now satisfied that, where carbon tax-related price increases were made, there is no information available to indicate that any liable entities in this sector are continuing to charge prices that include any carbon tax components.”

The report noted that the ACCC would continue to monitor the construction materials manufacturing sector for complaints and to ensure further misrepresentations did not occur.

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