May 20, 2008

Roadbuilding

Less road work, fewer repairs as asphalt prices hit $676.47 per tonne

IAN HARVEY

correspondent

The Ministry of Transportation Ontario has kicked off the spring construction season by posting its new asphalt price index benchmark at $676.47 per tonne, leading to predictions that less paving work will be done this year.

The MTO asphalt price index is referenced not just by Ontario, but also most of its municipalities and and sets the standard for cost estimates for road building and repairs, as well as serving as an input source for other construction projects.

The new benchmark indicates that almost all areas of construction input costs are set to rise. About 80 per cent of the asphalt consumed in North America goes to road construction, with most of the balance going to roofing materials such as shingles.

Given the recent leap in crude oil prices, Mike O’Connor of the Ontario Hot Mix Producers Association says it’s no surprise the benchmark hit new highs.

“They update in December when demand is low, so usually it’s the lowest price of the year,” he says of the $435.90 per tonne December posting which stood officially until earlier this month. “However, we know the oil industry announced increases, which meant two bumps of a $100 each, so this is in line with that.”

Asphalt was $508 this time last year and remained in that range throughout the summer before dropping and was $332 in 2006. As crude oil prices continue to surge towards $130 a barrel, related products are also increasing in cost such as gasoline, diesel and bitumen products like asphalt.

“It’s about five per cent of the mix, so it’s not disasterous,” says O’Connor. “Work is not going to dry up, but there may not be as many repairs.”

Rob Bradford of the Ontario Road Builders’ Association agrees: “I think there will be less work, fewer repairs,” he said.

“They won’t spend any more than they’ve allocated and costs are going up, so that will mean less work.”

However shocking the price index might be, it’s critical protection for paving contractors, Bradford said.

“Just the fact that we have this price index makes us feel a little more comfortable. It gives us some shelter with the provincial work, though the problem remains with the municipalities who are 50-50 on the index.”

He says some municipalities take a hard line with contractors, saying input costs should be projected with the bid while others realize projecting fuel costs has become a huge issue.

There’s also a rider in provincial contracts that allows for a price adjustment on diesel fuel costs involved in hauling material to and from the site and in running the heavy equipment and the heaters to keep the asphalt mix hot.

The rise in input prices for asphalt may drive more recycling, but that too is problematic, says O’Connor.

He said recycling more asphalt makes more sense when the raw material prices rise, but so far that’s been limited since not all Ontario municipalities will accept recycled materials.

“They can recycle residential asphalt shingles too, but there’s only a couple of places that do that and they’re not in Ontario, so they tend to collect from the manufacturers where there’s a lot of wastage in the production of new shingles.”

And, as Bradford notes, recycling is expensive, even if its use is permitted.

“It costs money to gather it up and melt it down again,” he said.

“But with virgin materials getting so expensive it’s probably getting to the point where it makes more economic sense.”

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