In August 2022, the Hungarian Competition Authority (GVH) closed its expedited sector inquiry into the insulation materials market, providing recommendations to manufacturers, the public, waste management operators and the legislator, aiming for a lower 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 the conditions of competition in a market. The ongoing investigation is the fifth in a series of expedited sector inquiries, with the competition watchdog’s previous investigations covering the markets for rapid antigen and antibody Covid-19 tests, elements of ceramic masonry and wood building materials.
The choice of the market is no coincidence: the price of building materials has risen sharply and significantly in recent years, affecting many segments of the economy. The results of the accelerated sector inquiry confirm that the prices of producers/importers of the three insulation products under investigation, namely mineral wool, expanded polystyrene (EPS) and extruded polystyrene (XPS) , have increased by an average of 61% over the last three years. According to the draft report, the rise in prices is due to higher prices of energy inputs for production (oil, electricity, natural gas), higher prices of imported raw materials used in production due to depreciation exchange rate and an increase in demand.
The investigation did not reveal any circumstances justifying the opening of a competition monitoring procedure; however, he identified some unfavorable market factors. To mitigate these factors, the GVH has proposed a number of measures, most of which focus on sustainability goals.
The GVH encourages manufacturers to increase their production capacity. To compensate for the significant increase in the prices of raw materials, more emphasis should be placed on the integration of waste and recovered products into the manufacturing process, on recycling and on the development of the necessary technological background. Recycling can help manufacturers deal with possible shortages of raw materials and reduce production costs, which can affect consumer prices. The GVH also calls on manufacturers to pay more attention to ESG (environmental, social and governance) aspects when planning their transport and traction capacities.
For the public, the GVH suggests that owners and designers consult with the insulation contractor as soon as possible to determine the types of insulation materials to be used taking into account the prevailing price and availability. The accelerated sector inquiry revealed that substitution possibilities exist between the various insulation materials concerned. However, as the insulation is included in the technical and fire protection plans, there is no possibility of later 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 so that the public can simply deposit styrene and polystyrene packaging free of charge in several places. The clean product collected could be sold to domestic EPS and XPS manufacturers, who could cost-effectively recover the 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 public subsidies for the renovation of dwellings and buildings, in order to avoid occasional extreme fluctuations in demand. This will help plan production capacity and investment decisions for manufacturers, which will provide more certainty on the supply side of the market and a better chance of avoiding product shortages.
Market participants can submit comments on the draft report until August 15. The HCA will then publish the final report shortly thereafter on its website, taking into account the comments received.