The hot-mix asphalt (HMA) industry has worked diligently to solve cost, energy and supply problems in cooperation with our partners through technical innovation and technology transfer.
All those involved in any type of construction have seen dramatic price increases over the last five years. Increasing energy and material costs have been responsible for an upward spiral in all highway construction prices. Even with recent increases, asphalt remains a solid value for pavement owners. First, asphalt cement is only 5 to 6% of hot-asphalt mixtures, so the cost of a ton of hot mix does not increase in direct proportion to a rise in the price of asphalt cement (or crude oil). Also, there is a significant opportunity to reduce the cost of hot mix through recycling. Hot-mix producers have the unique ability to reclaim the asphalt binder for its highest use, as a part of the new binder as well as reclaiming the aggregate.
The asphalt pavement industry has shown great resilience throughout the past year, and the industry produced a record tonnage of HMA paving material. This resilience is largely due to the ability to place HMA with minimal traffic disruption. Through focused research with our agency partners over the past 20 years, the performance and service life of asphalt pavements has been improved. Even with the challenges of price and supply unpredictability in 2006, the industry was able to function and fulfill its obligations to both the owner agencies and the traveling public.
However, the future is uncertain. Rising costs are not just bad news for one segment of the construction industry. At some point, they may mean that pavement, bridge and other projects need to be deferred until the money can be allocated to complete them. This would be bad news for everyone—industry, agencies and the public—since it would mean fewer projects. We must work together as a community to shore up the national infrastructure by stretching the available funding to the greatest extent possible without sacrificing quality.
The price increases of recent years have two origins: one is the competition from rapidly developing countries such as China and India, and the other is rising energy costs. The economies of China and India are expanding very quickly, and with that expansion has come an investment in infrastructure. For example, just one project, the Three Gorges Dam in China, is using over 35 million cu yd of concrete and 354,000 tons of reinforcing steel. The magnitude of material consumption in this and other projects has created pressure on global cement and steel supplies, resulting in increased costs.
Increasing energy costs are due to a number of factors, including competition from expanding economies, political instability in some oil-producing nations, stiffer regulations on producers and hurricanes Katrina and Rita. While energy prices have increased rapidly from 2004 through summer 2006, they have leveled off and even fallen since. In November 2006 the price of West Texas Intermediate crude oil was $67.35 per barrel; in early January WorldOil.com listed it at $56.30. The 2006 hurricane season thankfully did not produce a hurricane that struck the U.S., and the Katrina damage to oil facilities has been repaired, although many people on the Gulf Coast are still in dire need of assistance to repair and rebuild their lives. In the end, all materials need energy to be produced, and material like concrete is no exception; producing portland cement is highly energy-intensive. The bottom line is that higher energy prices mean more expensive motor vehicle fuel, lower fuel-tax revenues and reduced government funding for all highway transportation industries.
Regional and local variations in materials prices exist according to price, availability and competition. However, a number of documents, which can be downloaded from the Washington State Department of Transportation’s (WSDOT) website, www.wsdot.wa.gov/biz/construction, show how material prices have been historically tracked in Washington, California and Colorado.
Figure 1 shows the change in Washington state’s construction prices between 2000 and those projected in 2006 (as of Oct. 18, 2006). These figures are estimates based upon the graphs available at the web address given below the table. The overall construction index was expected to rise by about 80% over this seven-year period. The cost of HMA was expected to rise by 90%, and concrete pavement was expected to increase 180%. The HMA increase was slightly above the overall construction index, but was well below the increase in concrete pavement cost. It should be noted that the increases in steel reinforcing bars and structural steel costs also reflect the international competition for building materials.
A comparison of HMA and concrete pavement prices in California is shown in Figure 2. From 1987 through the first three quarters of 2005, HMA prices increased from $27.54/ton to $68.42/ton, or about 148%. This compares with an increase in concrete pavement prices from $70.62/cu yd to $162.14/cu yd, or about 129%. If the data from 2002 through the first three quarters of 2005 are considered, the price increase has been about 40% for HMA and about 119% for concrete pavement.
Finally, a comparison of asphalt and concrete pavement price indexes in the federal-aid highway system from 1987 through the second quarter of 2006 (when prices for oil and asphalt cement were just about at their peak) is shown in Figure 3. The index reflects the fluctuation in costs from the baseline year (1987), and it shows that, while the price has increased for both products, concrete has risen more than asphalt.
As for life-cycle costs, the point has been made time and again that HMA provides a cost-efficient pavement for both agencies and users. Prof. Steve Cross, now at Oklahoma State University, performed an economic analysis of existing concrete and asphalt interstate pavements in Kansas. His conclusions stated that HMA pavements had lower initial costs, lower maintenance costs over a 40-year period and about the same average service life as concrete. Other studies in Washington state and Ohio have shown the same performance and economic advantages of HMA pavements.
Energy costs also have affected construction costs across the board. Rising fuel prices in the last couple of years have caused the nation as a whole to re-examine the way Americans live their lives and conduct business. The concrete industry has inferred a direct correlation between crude oil and asphalt prices. Referring again to the WSDOT website (www.wsdot.wa.gov/biz/construction), it is easy to see that the increase in crude oil prices from 2002 through the third quarter of 2006 far outpaced the increase in HMA prices in the state of Washington. In fact, diesel fuel prices outpaced the increase in HMA prices as well.
The concrete industry also has made claims concerning the availability of asphalt binder in the future. They state that refinery preference for sweet crude that has a lower asphalt content and the anticipated installation of cokers in refineries would make the supply of asphalt dwindle and cause the price to escalate faster. The fact is that refineries’ preference for sweet or heavy crude depends upon the marginal difference in the prices they pay for them. When oil prices rise rapidly, this difference narrows and it becomes more attractive for refineries to buy sweet crude; when the price stabilizes or falls, as it has done recently, the margin makes it more attractive to buy heavy crude.
Cokers allow refineries to produce greater quantities of lighter products that have higher energy value from the heavier petroleum products. While asphalt falls into this category, it does not mean that all refineries will choose to install cokers or that refineries having cokers will stop producing asphalt. The installation of new equipment in refineries is part of the modernization that has been sorely needed in this country’s oil industry. Some refineries have historically run cokers in the winter when the demand for asphalt is low and have returned to producing asphalt in warmer weather. Operating a coker is expensive, so economics drives the decision process as it does in any business.
The concrete pavement industry also claims that the asphalt supply is completely in the hands of foreign oil-producing countries. Not so. In fact only 35 to 40% of the asphalt cement consumed in the U.S. is refined from foreign oil. It is worth noting that about 25% of the portland cement consumed in the U.S. comes from foreign production, mostly China. We live in a global economy; there are very few industries that do not cross international borders.
We invite the concrete pavement industry to join us in working with agencies to improve our transportation infrastructure. It is important to the highway industry, the agencies we work with and the economic vitality of our country.