A more than 40 percent jump in asphalt prices over about the last year has shocked Spokane-area paving contractors, delayed some projects, and caused government officials here to fret about potential cutbacks in future repaving work.
It will be straining budgets, predicts Steve Robinson, vice president of Spokane Rock Products Inc., one of this areas largest paving contractors.
Asphalt now is selling mostly for $60 to $70 a ton, up from around $45 at the beginning of the year and the mid-$30 range several years ago, industry sources here say. Robinson says a big part of the price surge is due to Hurricane Rita, which last fall caused $10 billion in damage along the Gulf Coast, including knocking out a number of oil refineries in Texas.
Since then, he says, due to a diminished supply, the price of asphalt cementthe black goo thats used as a binder with rock, sand, and gravel to create asphalthas shot up in price by probably 250 percent. Asphalt cement, which also is called liquid asphalt and is derived from the thick residue left after oil is refined into gasoline and other products, typically makes up about 5 percent of finished asphalt.
To a certain extent, we expected (the price escalation) to slow down over the winter months. It did not, surprising us substantially, Robinson says. Basically, what were seeing is, we have to pass those costs on through. We have no choice. We get asphalt cement quotes from the suppliers.
Not only is the price high right now, but supply is uncertain, he says, adding that asphalt cement suppliers arent honoring job overruns and some companies now are quoting paving jobs without guaranteeing an asphalt supply.
The supply-demand imbalance should ease over time, particularly as the construction markets recent hot growth slows and demand softens, but asphalt cement prices arent expected to fall, Robinson says.
Basically, youre never going to see it go down to the other level, he says, comparing the upward price pressure to that on gasoline and other petroleum products.
Jim Ellingson, estimating manager at Spokanes Inland Asphalt Co., says the rapid surge in asphalt prices caught us by surprise. Hurricanes are partly to blame, but the rising diversion of the oil used in asphalt to other, more profitable usesone of those as bunker fuel in ocean shipsalso is contributing to the problem, he and others say.
The (asphalt-paving) market is still pretty good, he says, but I do think some of the agencies are looking at their budgets. I think were seeing agencies cutting back on the work theyre bidding because of the price impacts on their budgets.
The soaring asphalt costs have hindered at least a couple of large projects in the Inland Northwest. The Washington state Department of Transportation, for example, had been slated to seek bids this past spring for the resurfacing of a 14-mile stretch of state Route 20 near Sherman Pass, but has decided to delay that bid advertisement until this fall, says Al Gilson, a Spokane-based spokesman for the department.
The intent on that is to get (the bulk of) the cash fall for that job into our next biennium, which begins July 1, 2007, Gilson says. The impetus for that is the high asphalt prices, just making sure we stay within budget.
Part of the problem for the state, he says, is that, Because we operate on a biennial budget, estimates for jobs being done today were done in late 2004, so our budget was built on 2004 prices, and use 8 percent escalation for inflation.
Similarly, the Idaho Department of Transportation has postponed seeking a second round of bids on a 90,000-ton asphalt repaving of Interstate 90both the eastbound and westbound lanesfrom the Washington state line to just east of Coeur dAlene.
That decision came after apparent low bidder Poe Asphalt Paving Inc., of Post Falls, withdrew its roughly $6.1 million bid following the first bid opening for the project a couple of months ago, says Barbara Babic, a Coeur dAlene-based spokeswoman for the department.
This was all not their fault. The timing was just wrong. Poe just couldnt get a supply without an asphalt escalation clause, Babic says. We allowed them to withdraw their bid with no forfeiture. Well try again probably in the fall.
The IDOT earlier rejected a low bid of nearly $4 million for the repaving of a roughly eight-mile section of I-90 east of Coeur dAlene after bids came in more than 10 percent above engineers estimates. When the agency rebid the project, though, the low bidaccepted this timecame in more than $700,000 higher.
We figured (after) the second time around we werent going to get it any lower, Babic says.
Interstate Concrete & Asphalt Co., of Coeur dAlene, won the job, which she says is expected to begin July 6.
She adds, Generally speaking, all of our projects have been hit with escalating costsnot just asphalt, but concrete, steel. Were seeing the pinch in a lot of areas, and the contractors are seeing the same. Its becoming increasingly costly to maintain the highway system.
In the city of Spokane, engineering services director Tom Arnold says, So far were doing pretty well. We really did a good job of getting our projects out early before the majority of this price increase hit us.
He says, In general we were down around $45 a ton for asphalt at the beginning of the year, and there are some projects hitting over $60 a ton now.
Although paving projects the city is working on this year arent being affected heavily, continued double-digit price increases in asphalt and other materialsnot to mention the cost of transporting those materials to the job sitescould cause problems, Arnold says.
Spokane County Engineer Ross Kelley says, Weve noticed a 30 to 40 percent increase on our bids that involve asphalt prices. That has cut into some our projects. Its eating into the contingencies that we put into these projects.
The rising asphalt costs havent caused the county to cancel or postpone any projects yet, Kelley says, but he adds, Its really going to have a big impact on our future projects.
The county has been finishing an update of its six-year transportation plan, for the years 2007 through 2012, and he says, What were seeing is were not going to have enough money to do the things weve wanted to do in future years.
Kelley says, Areas were having to back off are where were paving gravel roads, such as access roads and lighter arterial roads, since those projects are funded mostly just with county money and dont get state or federal support.
He predicts that the higher asphalt prices also likely will take a toll on road improvement district projects, in which affected property owners agree to repay a large portion of the costs through special assessments.
The county has about $20 million worth of paving work slated this construction season, which is the busiest its been since Spokane Valley incorporated, he says, but concerns about where the money will come from for future projects still loom large.
We just cant take another 40 percent next year, he says. That will just kill us.
Contact Kim Crompton at (509) 344-1263 or via e-mail at email@example.com.
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