But pricing is all about psychology, as was demonstrated by RMC's reaction to Blue Circle's proposal. As Blue Circle's largest customer - cement accounts for a quarter of the cost of readymix - RMC would be expected to resist fiercely any increase. Instead, it mused that the market was growing to accept the idea that price rises were inevitable - which, of course, will do no harm to its plans for a price increase later this year.
The market may have been softened up for increases by British Steel, Pilkington and BPB, which have managed to raise prices. But they have been helped by devaluation, which has limited the ability of the mainly foreign competitors to undercut. And prices for glass, steel and plasterboard have fallen much more sharply during the recession than for cement and concrete.
But investors, who pushed Blue Circle's shares up 3.5p to 241p and RMC up 21p to 628p yesterday, should not get too excited yet. The increases proposed in cement and concrete would do little more than recover the ground lost last year - the worst year yet for the industry.
The benefits of an increase will be more evident at Blue Circle than RMC. It is far more dependent on the domestic market - 55 per cent of sales compared with 27 per cent at RMC - and its cement, heating and bathroom subsidiaries are more responsive to the housing market.
Blue Circle's rationalisation programme has also been more radical, with 15 per cent of capacity and 19 per cent of its staff to go this year. Although the full benefits will not be felt until 1994, it should guarantee an improvement in profits in the current year.
RMC's performance, on the other hand, could start to be hindered rather than helped by its German exposure. While the buoyant housing market there means it should improve on the pounds 123.2m operating profit earned last time, the spectacular growth enjoyed in the west in the past three years has tailed off - although the much smaller east German business should continue to power ahead. For the next two years at least, it will have to rely on what is likely to be a sluggish recovery in Britain as the main engine of growth.
That is reflected in the different ratings. Blue Circle is on a prospective multiple of 20, based on forecasts of pounds 140m, while RMC stands on 18.5 times on an expected outturn of pounds 175m. While the 1980s proved that RMC is a quality act, Blue Circle holds far more excitement in the immediate future.Reuse content