Castle Cement blames rising energy prices and European legislation – and predicts knock-on effect

Castle Cement, the UK’s third largest cement producer, this week warned the industry to expect a cement price increase of up to 15% in the first quarter of next year.

The company, which is owned by German group Heidelberg, said that energy prices and European legislation were behind the change.

Mike Eberlin, Castle’s commercial director, said that contractors should be aware that the changes were set to have a major impact.

Eberlin said: “We want to warn the builders and contractors about the sheer magnitude of these costs.”

Eberlin said that as the price of coal and electricity bought by Castle was set to rise by 20% and 50% respectively, the company faced no option but to increase its own prices.

“These increases have a disproportionate effect on cement manufacture because it is such an energy intensive process,” said Eberlin.

The hike in energy costs is mainly driven by a booming demand in China, which in turn has driven up coal and shipping prices.

He also warned that two pieces of European legislation were set to further affect prices.

We want to warn builders and contractors about the sheer magnitude of these costs

Mike Eberlin, Castle Cement

In the first ruling, effective in January 2005, manufacturers will have to add an expensive chemical reducing agent to cement in order to prevent workers from developing a form of dermatitis.

Castle predicts that this in itself will add about £1 per tonne to the cost of making cement.

The second piece of legislation, to be enforced in March, cuts drivers’ working hours from 55 per week to a maximum of 48. Eberlin said Castle would be forced to employ more drivers and invest in more vehicles.

He said: “Transport is a high proportion of our costs and these increases will have a major impact.”

Peter Fordham, associate at Davis Langdon, said that although hikes in energy costs would have the biggest impact on cement prices, there would be wider implications.

He said: “There will certainly be a knock-on effect on building products across the board.”

Steel prices rose last Friday, but Derek Tordoff, director general of the British Construction Steelwork Association, said that no further increases were expected this year.