View from City Road: Wait a while for plasterboard

A29 per cent increase in BPB's plasterboard prices over the last 15 months, in the thick of a construction slump, looks at first sight like a nasty abuse of another European building materials cartel.

It is a logical conclusion of the company's almost total dominance, along with its French and German partners Lafarge and Knauf, of the European market. The three have finally succeeded in pushing the remaining independents out of the game.

Time for an investigation by the Office of Fair Trading or the European Community authorities? It might be were it not for the fact that plasterboard prices are still only three-quarters of their 1989 level in real terms. If the market is in the hands of too few players for long- term comfort, the consumer has so far emerged smiling.

The ruinous scramble for market share has pushed the two Continental players into losses and cost the industry as a whole millions of pounds in lost profits.

Having lost a third of its UK monopoly over the past five years, BPB should be able to keep the trust-busters at bay. Which is just as well, because it will need to devote all its energies to restoring the profits wiped out by the price war.

It faces an uphill struggle. In the UK the capacity to churn out more than 200 million square metres of board still swamps demand of just 140 million. And prospects for the home market are a great deal healthier than on the Continent, with the possible exception of Germany, where building programmes in the east are keeping the industry afloat.

John Maxwell, chief executive, explains the madness of the past few years as a reflection of the attractions of what he says is the fastest-growing area of the building materials industry.

But with demand in France sliding and recovery in the UK likely to be at best anaemic, his enthusiasm seems as misplaced as investors' rush into the sector since sterling's devaluation last September.

Building materials companies have outperformed the All Share Index by more than 50 per cent since then. Even if BPB lives up to hopes of a 35 per cent jump in pre-tax profits by this time next year, the shares stand at a whopping premium.

Wait for the figures to catch up before chasing them.