February 4, 2010
Asphalt Prices. Forecasting the 2010 season.
Summer of 2008… People associated with the asphalt industry know this time period very well. It was when the prices of asphalt rose unpredictably. In two months pricing went up a staggering 70%, causing major grief for the industry and its patrons. Oil producers are already creating major concerns for what this season will have in store for asphalt prices.
As of February 1st, asphalt prices have shot up 20% since December 31st, 2009. This fact is hard to believe since most paving and roofing contractors across the nation use very little asphalt in the winter season. Demand for a particular product usually dictates how much it costs. Liquid asphalt is a byproduct of refining petroleum. In plain English, it’s the stuff left over after gasoline, diesel, and jet fuels are produced. Since the mid 1970’s, oil refineries have been extracting more fuel from every barrel of crude oil through developments of coker units. Coker units can maximize fuel production from crude oil. What this means is that the oil companies have near complete control over what products they make. This also gives them the power to manipulate prices anyway they want. They can simply slow production of any given material and raise the prices; citing more demand for the material. Consequently, oil refineries that also produce liquid asphalt have complete control over markets that utilize asphalt products. At anytime they could start producing more liquid asphalt from crude oil, but they choose not to. During the 1970s, as much as 40-50% of all refined petroleum was left as liquid asphalt material. Now, with the power of selection, fuels are the primary focus of production, leaving only about 5-20% of each barrel of oil refined into liquid asphalt. Throughout all this, the oil companies continue to make more profits while regular people struggle.
Why are prices so high in the midst of recession and the “down” season? Several explanations have been given by one oil producer located in Wood River, Illinois (small town north of St. Louis): Since the American economy is in recession and inflation is up, sales of goods are down and people are spending less money. Because people are doing less and buying less, less fuel is being consumed. Since less fuel is being produced, less asphalt is being made as result. Therefore they have less liquid asphalt to sell. This has all happened over the course of this winter. Another speculation for the subsequent rise in liquid asphalt is major resellers of liquid asphalt have purchased large quantities this winter; leaving the supply low. They do this to try and maximize profits in the spring, in case of a price spike. I asked about decreasing the production amounts of fuel to help balance out the overall petroleum market. The representative for the oil producer did not have any information on if that in fact would be implemented, but he did agree that it would stabilize the situation. The information available on the determining force behind the refining process is limited. Another possible scenario as to why big oil companies charge so much for liquid asphalt is because of the focus on infrastructure today. Much of President Obama’s plan for stimulating the economy is dedicated to improving roads and highways. So instead of making money from the motorists, they will get it right from the government through the sale of asphalt material. Again, this is speculation, but it’s not farfetched.
Unfortunately, this year will probably be much like 2008; volatile and inconsistent. Unless the big oil companies start being more fair and ethical in how they price fuel and other petroleum products, more negative effects will be prevalent in the private sector and for the overall economy.
Regardless of how the prices fluctuate, projects utilizing asphalt pavements and roofing materials will always need to be completed. Simply “waiting” for the market to stabilize is not a realistic stance to take. Even during a recession it might be best to try to get asphalt projects done sooner rather than later. In 2008 we were headed for a recession. The best analysts couldn’t predict what would happen then. In 2009, prices receded slightly, but remained overall consistent. As of right now the price of liquid asphalt is just a couple of dollars less than where they peaked in 2008.
If you have a project planned for 2010 that involves using asphalt related materials, please keep a few tips in mind. Paving contractors, roofing contractors, etc have no control of material prices. Since 2008 prices are given on a monthly basis. There is no ability to lock in your price. When your project takes place will determine how much you pay for material. Try to complete your project in the spring time. Most contractors start the season slow, and progressively get booked as the season gets close to the end of the year. If your project is residential, try to get a neighbor to have work done as well to take advantage of a multi-discount. If you are constructing an asphalt surface such as road, parking lot, or driveway, keep your design simple and focus on the foundation of the surface. Rock is relatively inexpensive and can help improve the overall strength of a paved surface. Doing this may enable you to use less asphalt depending on the scenario. If you are selling a property, try to emphasize esthetics over functionality. You may be able to perform simple maintenance rather than replacement to enhance appearances. When choosing a contractor, be sure to do your homework before making a decision. Check for any information about them on the internet. Look to see if they have a website which enables you to actually look at the type workmanship they are capable of. Actually check with any references they give you. You should do this regardless of the state of the economy, but today it is increasingly important.
Creve Coeur Paving:
A Saint Louis based, family owned paving company focused on utilizing the most advanced methods of servicing its clients. Motivated by the company’s highly regarded work ethic, its owners and employees have been striving for perfection for over thirty five years. “Our Passion, Your Pavement.”
Richard Dinkela II, Operations
Creve Coeur Paving