Concerns about proposed brick supplier JV

As previously reported by Quarry, clay brick suppliers CSR and Boral announced plans in April this year to combine their brick operations on the east coast of Australia.

According to the two companies, the proposal – which would involve the creation of a joint venture (JV) entity 60 per cent owned by CSR and 40 per cent owned by Boral – arose out of the “sustained structural downward trend” that Australian brick manufacturers had been experiencing over the past three decades.

“With bricks becoming an increasingly smaller component of the highly competitive cladding market, lower brick demand has resulted in declining capacity utilisation, reduced profitability, plant curtailments and closures,” the companies explained in a joint press release.

“The proposed transaction will enable both Boral and CSR to access additional operational and overhead efficiencies that would otherwise be unavailable to the parties acting independently. The JV will be a more sustainable business positioned to deliver returns that recover the cost of capital through building cycles.”

However, the Australian Competition and Consumer Commission (ACCC) has argued that the reduced competition that would result from the formation of a JV would likely have a negative effect on the eastern Australian brick market.

Lack of competition and alternative product
In a statement of issues published after an extensive market inquiry, the ACCC pointed out that the proposal would mean eastern Australian customers would be limited to two major clay brick suppliers – the proposed JV and Austral Bricks. Further to this, in New South Wales and Queensland, the two suppliers would account for approximately 99 per cent of the supply of clay bricks.

“The proposed JV would result in a duopoly in eastern Australia,” ACCC chairman Rod Sims said. “The ACCC’s preliminary view is that this would be likely to lead to an increase in the price of clay bricks as well as a reduction in the product range available to residential builders, architects, and end-consumers.”

The ACCC’s findings also indicated that in the event of such a price increase, some customers might not be able to source suitable alternatives due to a strong consumer preference for new homes – especially detached homes – to be constructed using clay bricks.

“Consumers are unlikely to choose fibre cement boards, concrete blocks or other materials in response to brick prices increasing,” Sims explained.

The statement of issues indicated that historically, residential builders would either absorb higher prices or pass them onto prospective homeowners rather than switch to an alternative form of external cladding.

Further information required
Sims said a critical issue for the ACCC would be to determine how the market would be affected if the proposal didn’t proceed. It was reported that Boral would shut down brick assets to realise land values if the companies were not able to consolidate their operations.

“At this stage, the ACCC intends to assess the likely competition effects of the proposed JV on the basis that CSR and Boral will remain in the markets in some form if the JV does not proceed but we are seeking further information on this issue,” Sims explained.

In a joint press release, Boral and CSR said they would continue to work with the ACCC to address the issues raised but stated that they “consider that the merits of the transaction are significant and that the transaction would not result in a substantial lessening of competition”.

The full statement of issues is available at

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