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Energy Costs and Asphalt

Energy Costs and Asphalt. By Nasreen Tasker Editor, Argus Asphalt Report. Outline. Factors that impact supply/demand fundamentals for asphalt Asphalt pricing methods Crude and asphalt graphs Economics and sustainability Changes occurring in the market Impact on the future.

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Energy Costs and Asphalt

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  1. Energy Costs and Asphalt By Nasreen Tasker Editor, Argus Asphalt Report

  2. Outline • Factors that impact supply/demand fundamentals for asphalt • Asphalt pricing methods • Crude and asphalt graphs • Economics and sustainability • Changes occurring in the market • Impact on the future

  3. A unique product • Supply/demand fundamentals affected by several variables • Variables in turn affect asphalt prices

  4. Factors impacting demand for asphalt • Government road spending • Economy • Private demand growth • Housing development • Natural disasters

  5. Factors impacting supply of asphalt • Refinery economics for asphalt • Alternative economics • HSFO and coker economics • Crude oil prices and light-heavy crude price spreads • Transportation options and availability • Adoption of new grades • Multiple grades in one market

  6. Asphalt pricing methods • Wholesale Prices • Spot deals • Term deals • Winter-fill deals

  7. Asphalt Pricing Methods • Retail Pricing • Price date-of-shipment • Fixed monthly prices • Fixed prices for a period of time • Indexed pricing • Not-to-exceed pricing

  8. Asphalt prices can be disconnected from the international crude market • Treated as a byproduct by integrated refiners • Have to move out inventory • Retail pricing can be slow to respond • Weak demand

  9. Changing business environment • Integrated refiners • Have to justify asphalt as a business unit • Alternative is upgrading • Specialized asphalt refiners • Not able to breakeven

  10. Difficulty in pricing asphalt • Factors affecting supply/demand are unpredictable • No futures market • Difficult to hedge • Historical resistance to changing pricing techniques • Change has begun

  11. All asphalt prices are from the Argus Asphalt Report

  12. Reduction in asphalt production Coker installations Things to watch in the future

  13. Things to watch in the future (2) • Asphalt grades • Growing number of grades in an individual market • More complex grades being adopted • Asphalt demand will vary • Global demand falls • Asian demand relatively strong • US demand weak • Higher asphalt prices • Set country budgets

  14. Net impact on asphalt market • Regional imbalances in asphalt supply/demand fundamentals • New patterns of trade • Asphalt viewed as a specialty product, rather than as a commodity • Reflected in asphalt prices • More price sensitivity to refinery shutdowns • Volatility replaces historical price consistency • Feast or famine

  15. In the past Price date-of-shipment Fixed monthly prices Fixed prices for a period of time Indexed pricing Not-to-exceed pricing Future Price date-of-shipment Fixed monthly prices Fixed prices for a period of time Indexed pricing Not-to-exceed pricing Asphalt Pricing MethodsRetail pricing

  16. Current Spot deals Term deals Winter-fill deals Future Spot deals Term deals Longer term deals are risky Winter-fill deals Fewer sources Asphalt pricing methodsWholesale Prices

  17. Change is here • Rate and timing of change will differ for various regions • Potential domino effect • No turning back • Market participants need to be prepared • Develop relationships • Stay informed

  18. The End

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