A prolonged strike shutting down Venezuela's exports of crude oil to the U.S. and uncertainty leading up to the Iraqi war caused a surge in oil prices that immediately impacted the asphalt paving industry during the first quarter. From last November to this month, the price of the benchmark West Texas Intermediate crude oil rose 43%, from $26.29 per barrel to $37.50. Asphalt paving prices soon followed.
During the first quarter, ENR's 20-city average price for liquid asphalt increased 10%, to $174.87 per ton. And it may take another month or two for the full impact of the March oil price to be reflected in ENR's statistics.
Ironically, oil prices fell sharply at the outbreak of the Iraqi war. In one week, the price of West Texas Intermediate fell about $8, to $29 per barrel. Paving contractors hope that analysis predicting price stabilization at these lower levels is correct . In the meantime, firms have to bid work with an uncertainty about the duration of high asphalt prices. "Even if prices fall, this takes time to get into the pipeline, and by then, we are already into summer where we have to bid on the bulk of this year's work," says Bob Bailey, president of Kokosing Materials Inc., which handles the asphalt operations of contractor Kokosing Construction Co., Fredericktown, Ohio.
By this March, liquid asphalt prices in California's Bay Area had already hit $200 per ton, 18% above last year's peak price of $170, says James H. Roberts, vice president of branch operations for Granite Construction Co., Watsonville, Calif. "The price of liquid asphalt is the highest we have seen in 10 years," he adds.
Higher liquid asphalt prices have pushed the price of finished bituminous concrete up by 6%, to between $25 and $30 per ton, says Roberts. When rising costs to operate diesel-fueled dryers for the aggregates are added to that, the overall per-ton price of the finished product rises by about another $4, he says. "On bid day, it's very difficult to capture back all those price increases," Roberts says.
According to Kokosing's Bailey, contractors that are set up to use recycled material can blunt some impact of higher asphalt prices. In Ohio, surface courses can contain up to 20% recycled material in the mix, and intermediate base course can go as high as 40%, he says.
"The price of asphalt is reaching $200 a ton in this market but that is not the whole problem," says Dave Carlson, president of Decorah, Iowa-based Fred Carlson Co. "Contracting authorities, who only have so much to spend, are not letting as much work. And for us, that's a double whammy," he adds.
Other executives fault the economy. "The real problem is, with work volume down, there are guys out there bidding cheap, so cheap that I don't see contractors recouping the increased cost of asphalt," says Hank Waggoner, chief financial officer for Lakeside Industries, Issaquah, Wash. "That's what's making this market tough right now."
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