For Americans, pain at the pump due to high oil prices translates into sticker shock when filling the gas tanks in their cars and trucks. For asphalt producers and contractors, however, the same high oil prices have a much broader reach, effecting everything form the cost of delivering material to the jobsite to the price of the product that is at the heart and soul of their businesses — asphalt.
Supply volatility on the world market pushing oil prices to more than $70 per barrel this summer, resulted in liquid asphalt quickly spiking to more than $400 per ton in some states. This, along with high diesel fuel prices, has sent a shockwave throughout the asphalt industry, significantly increasing the cost of the final asphaltic concrete product.
In Montana, the liquid asphalt prices reflected in 2005 bids ranged from $260 to $300 per metric ton of a standard asphalt design. This year, the same AC will cost as much as $440 per ton. Officials in Lee County, FL, have seen asphalt mix costs rise from $42.55 per ton last year to nearly $88.00 per ton this season. With the limited funds available to public officials, this translates into fewer projects completed and large projects being spread out over a longer time frame.
Dealing with volatility
Liquid AC price volatility has made the life of the asphalt contractor interesting to say the least. "Previously, the price of our asphalt would be good for a year," says Nathan Ellsworth, vice president of Ellsworth Construction Company, Tulsa, OK. "Now it's good for only 30 days."
Thirty days may suffice in other industries, but it is basically useless for a company bidding a project that may happen months down the road. "The asphalt contactor is usually the last guy on the job, and predicting the cost of asphalt is now a shot in the dark," he adds.
For public work, most states have implemented or are moving toward some version of an asphalt cement price adjustment. According to a May National Asphalt Pavement Association publication based on 2005 American Association of State Highway Transportation Officials and 2006 NAPA surveys, more than half the states have implemented a special provision in their specs for adjusting the price of liquid asphalt. The vast majority of these states are on the East and West Coasts, leaving some Central states with no adjustment provisions or considering new provisions.
In June, the Oklahoma Department of Transportation implemented a monthly Asphalt Binder Price Index under Special Provision 109-7(a-b)99. The monthly price shown reflects the average selling price of PG 64-22 asphalt binder as listed under the Midwest/Mid-Continent Market —Tulsa, Oklahoma/Southern Kansas Area.
At the start of indexing, the standard cost-per-ton listed at $302.50 and quickly increased to $350 per ton in July. The last reading, September, put the index at $375.00 per ton. "The index is a way for the state to be fair to the contractor, but it also protects the state from a contractor who may inflate the asphalt cost, so he does not lose money on the project," says Ellsworth.
Price indexing is a way to protect the contractor and states alike from the volatility of AC prices, but it does not address the issue of high asphalt costs. Unfortunately, according to David Newcomb, P.E., PhD, vice president – research and technology at NAPA, "there is no magic bullet" to quickly lower the cost of asphalt. However, there are certain techniques that asphalt producers and contractors can employ to reduce the amount of asphalt used and, thus, lower project costs.
Bump the RAP
Those old enough to remember the oil embargo of the 1970s know that escalating oil and AC prices aren't unprecedented. It was during this time period that recycling asphalt made its emergence onto the industry's center stage. Equipment manufacturers introduced large, high production asphalt recycling equipment like half- and full-lane milling machines and full depth reclamation equipment.