Virtually all producers of refined coal tar sealer encountered shortages or delays in RT-12 supply last year, resulting in shortages or delivery delays of refined coal tar sealer to contractors. This is the fourth year in a row the sealcoating industry has experienced at least a mild disruption in delivery of refined coal tar sealer, and while factors have varied year to year, they all point back to the availability of crude tar.
Crude tar, a byproduct of the coking process used in the production of steel, has been the backbone of the sealcoating industry for most of the country for the last 50 years. (Asphalt-based sealers, a byproduct of the petroleum refining process, have traditionally dominated sealcoating markets west of the Rocky Mountains, though asphalt sealer is steadily working its way into sealcoating markets throughout the country.)
But the story in 2006 – and probably for 2007 and beyond – is refined coal tar sealer. What's happened to its production? Why have there been shortages the last few years? What's likely to happen with coal tar in 2007 and, perhaps more importantly, beyond 2007?
Because looking back is always easier than looking forward we can likely explain the availability issues that plagued RT-12 producers, sealer producers, and sealcoating contractors throughout last year. Looking ahead, however, gets hazier as the number of variables that can impact the coal tar sealcoating industry become greater and less predictable.
Crude coal tar supply
Crude coal tar is a byproduct made when converting metallurgical coal into metallurgical coke, which is then sold to steel producers. The crude coal tar is sold to processors who distill it and re-sell it to other industries. Most crude tar distillers and sealer producers say the size of the crude tar pie has remained stable over the last few years.
"The supply of crude coal tar in the U.S. is what it is," says Al Morris, president of Coopers Creek Chemical Corp., probably the smallest producer of refined tar in North America and one of four remaining RT-12 producers (with Koppers Industries, Tangent Rail Corp., and VFT Canada Inc.). "The pie is only so big, and we're all pretty much locked into our supply from year to year."
But the crude coal tar pie is smaller than it once was. A 1998 Koppers Industries report, for example, anticipated a 23% decline in the supply of coal tar through 2005. The report noted a number of reasons for the expected decline, among them aging and closing of North American coking operations, and newer coke ovens designed as "non-recovery" operations – essentially producing coke without coal tar recovery.
Mike Sutton, president and CEO of VFT, which got back into RT-12 production two years ago following a 10-year absence, estimates that in 2006 the production of coal tar was down 25% to 30% from 2000 levels. He estimates there was roughly 800,000 metric tons produced in 2006, down from about 1.1 million metric tons in 2000.
While exact figures are hard to come by, industry consensus is that Koppers is the biggest player in distilling coal tar in North America. This was further supported by Koppers acquisition of certain assets of Reilly Industries early in 2006. Reilly's RT-12 business, and their crude tar sources, transferred to Koppers at that time. Koppers historically has provided a sizable volume of RT-12 to the sealcoating industry, and any disruption of crude tar to Koppers, or RT-12 from Koppers, will significantly impact this industry. And it appears that's what happened in 2006.
First, a strike at a steel producing plant in Mexico shut down the supply of crude coal tar from that plant. That crude tar was destined for Koppers, which was suddenly faced with a raw material shortfall. The problem was compounded by production cutbacks at certain other crude tar producers due to maintenance and/or quality improvements. The combination of the crude tar shortage caused by the strike and the production cutbacks put Koppers in a difficult position during 2006.