Asphalt costs rise in lockstep with oil

Construction continues to have the dubious distinction of outrunning the overall economy in price increases says the April producer price index compiled by The Bureau of Labor Statistics.

The price indexes for construction materials were at least 7 percent higher than they were a year ago. But worst of all was the increase for highway and street construction 13.7 percent.

The culprits? Diesel fuel, asphalt, and concrete, says the Associated General Contractors of America.

And asphalt prices may soon rise even faster, with shortages likely in some regions, as refiners bring online new desulfurization equipment that yields more gasoline and diesel fuel from crude oil but leaves little or no liquid asphalt from refining.

And, as oil prices rise, asphalt made from the bottom of the barrel crude rises in lockstep.

"We've seen a 70 percent increase in the cost of asphalt in the last two years," says Joe Serpa, engineering vice president at Q&D Construction.

Ultimately, that impacts the whole economy.

"Developers in new residential communities are taking the cost increases in stride and passing them on to homeowners, which is killing the availability of affordable entry-level housing," says Serpa.

And, rising prices could make recycling look cost effective.

"When it comes to street repair and replacement," says Serpa, "asphalt

costs have climbed high enough that recycled pavement and concrete products are now a viable option in many situations."

Meanwhile, Lyon County, with its many miles of rural roads, must bite the bullet.

"We saw a 30 percent increase over last year," says Gary Fried, Lyon County Road Division road manager. "You get less done; it costs more money."

He points to a $3 million project, an arterial road in Dayton, and says, "Between the time it was bid and begun, I had to drop 25

percent of the project to stay within budget."

And was next year's county roads budget increased to reflect rising prices?

"No," he says, "It was reduced."

In the Truckee Meadows, Robert Russell, engineering director for the Regional Transportation Commission, says higher asphalt prices translate into increased project costs of 15 percent.

It's not just asphalt, he says.

"Contractors must haul it in large trucks. Rollers, graders, pavers all consume a lot of diesel fuel. All those prices bid on down the food chain," Russell says.

Reasons for tight supplies and rising prices include strong global demand and hurricane damage to Gulf Coast refineries.

A warmer-than-usual winter in many parts of the country allowed for more road construction, increasing the demand for asphalt.

The best crude oil for making liquid asphalt, meanwhile, comes from Venezuela. But oil exports to the United States have been cut because of increasingly tense ties between the two countries.

The cost of concrete is also affected by rising energy costs. Cement plants use vast amounts of energy to dry cement and then cool it.

"Concrete is still more expensive than asphalt for roads for initial installation," says Serpa. "On our current Moana Lane extension project, the RTC specified concrete for all intersections because of its greater durability, but upgrading from asphalt to concrete on the remainder of the project would have increased Q&D's $13 million contract by $1.5 million."

But the investment may pay off.

"I think the still-perfect Center Street, which Q&D installed in concrete 10 years ago, is testament to the fact that concrete roads are more cost effective over time," Serpa says.

Prices will likely go up before they go down, says Fried.

"I think it'll go higher - another 20 to 20 percent more, before it levels and stabilizes," he says.

Meanwhile, road contractors tell Freid they figure oil will go up to $80 a barrel.