In August 2022 the Hungarian Competition Authority (GVH) closed its accelerated sector inquiry into the market for insulation materials, providing recommendations to manufacturers, the public, waste management operators and the legislator, aiming for a decrease in product prices.
An accelerated sector inquiry, as a new competence of the GVH, was introduced by the Hungarian legislator last year to enable the competition authority to quickly and efficiently assess competitive conditions in a market. The current inquiry is the fifth in a series of accelerated sector inquiries, with previous investigations of the competition watchdog covering the markets for Covid-19 antigen and antibody rapid tests, ceramic masonry elements and wooden building materials.
The choice of market is not a coincidence: the price of construction materials has risen sharply and significantly over the past few years, affecting many segments of the economy. The results of the accelerated sector inquiry confirm that the producer/importer prices of the three insulation products under investigation, i.e. mineral wool, expanded polystyrene (EPS) and extruded polystyrene (XPS), have increased by 61 % on average over the last three years. According to the draft report, the price increase is due to higher prices for energy inputs for production (oil, electricity, natural gas), higher prices for imported raw materials used in production due to exchange rate depreciation, and an increase in demand.
The inquiry has not revealed any circumstances that would justify opening competition supervision proceedings; however, it did identify certain adverse market factors. To mitigate these factors the GVH proposed a number of measures, most of which focus on sustainability goals.
Recommendations of the report
The GVH encourages manufacturers to increase their production capacity. To compensate for the significant increase in raw material prices, greater emphasis should be placed on the integration of waste materials and recovered products into the manufacturing process, on recycling, and on developing the necessary technological background. Recycling can help manufacturers to address possible shortages of raw materials and reduce production costs, which can be reflected in consumer prices. The GVH also calls on manufacturers to pay more attention to ESG (environmental, social and governance) aspects when planning their transport and haulage capacities.
For the public, the GVH suggests that clients and designers consult with the insulation contractor as early as possible to determine the types of insulation materials to be used, taking into account the current price and availability. The accelerated sector inquiry has revealed that substitution possibilities exist among the different insulation materials concerned. However, as insulation is included in the technical and fire protection plans, there is no possibility for subsequent modification once these plans have been adopted - as the draft report points out.
Furthermore, waste management operators are recommended to adapt the selective waste collection system in a way that the public can simply drop off styrene and polystyrene packaging materials free of charge at several locations. The clean product collected could be sold to domestic EPS and XPS manufacturers, which could cost-effectively recover raw material for production from the recycled packaging materials.
Finally, the GVH advises the Hungarian legislator to keep the demand for insulation products stable in the long term by means of various state subsidies for housing and building renovation, in order to avoid occasional extreme fluctuations in demand. This will help in planning production capacity and investment decisions by manufacturers, which will provide more certainty on the supply side of the market and a better chance of avoiding product shortages.
Market players may submit comments to the draft report until 15 August. The HCA will then publish the final report shortly after on its website, taking into consideration the comments received.
By Anna Turi, Head of Competition, and Balint Szabo, Associate, Schoenherr