Call Toll Free +1 855-856-TIPS
REDUCED WINTER CONSTRUCTION PROFITS
As Most northern states; and as we saw in Texas last month, some southern states, rebound back from a round of brute “winter conditions” cost overruns and temporary layoffs that stretched across already inflated construction budgets from the past month as we are inching in on April.
The perfect storm of inflation on items primarily due to demand is comforting but the balloon seems to be inflating quickly across the board cooling construction profits while increasing demand for productivity is desperately needed. We see that low interest rates brought strong demand for real estate and in turn housing construction that caught the lumber industry off guard last year as they still try to keep up. Shipping ports are strongly backlogged adding to only more problems all around. Canada lumber production & tariffs are heading in a better direction this year but we still have yet to see a difference here in the United States as lumber prices are still hovering at record highs.
INFLATION FROM CONSTRUCTION DEMAND
Oil, diesel and bitumen prices have been making double digit percentage gains for the past 2 quarters steadily. Currently global supply chains are running wide open and mobilization is rapidly growing among the citizens of the United States as we have our eye on Spring. April being the start of what we believe to be the peak construction season through out North America and its is gearing up along with what looks like everyone and everything else. Asphalt plants for half of the USA and all of Canada have been offline for the winter all together and will start warming up now for the season. We saw Texas production temporarily offline as well. Other international northern countries will see the demand tick up as well.
CONSTRUCTION ANALYTICS & RESEARCH
Ok. Lets get to our research. We analyzed the newly released Combined Asphalt Price database of 811 HMA (Hot Mix Asphalt) contracts from the Wisconsin Department Of Transportation tracked state wide. The spreadsheet contains awarded proposals for the past three years. The spreadsheet includes bid information for the awarded bids. The DOT information states ‘’bid prices were adjusted into current dollars using the Wisconsin DOT Chained Fisher Construction Cost Index and do not need to be inflated.’’ The average cost per ton of HMA averaged out at about $78.00 and this data was released to us just this week. Most common mix designs ranged from $72-100 per ton of HMA depending on county. The index pricing flat through out 2020 turning downwards at 2021. We are going to use this range as the estimated cost they are primarily using for their benchmark estimating DOT projects and budgets. These costs are also in line with datasets used across the country like RS Means and DOT States nationwide. It’s showing a turn down in its last 2020 Quarter 4 index. The DOT index methodology takes in more then base material costs. It also absorbs and releases change order pricing differently according to PPI. It pays items out differently then non DOT construction contracts making it in reality a separate economic climate compared to the rest of the construction industry. In simple essence a more protected and stable price climate for the government and highway construction contracts.
Current data sets from RSMeans, a trusted tracker of costs on public projects by estimators and analysts, listed 2020 QTR 2 prices of bare material Asphalt Binder course at $72.25 & $78.20 for Asphalt Top Coat with a geolocation factor for New York City. It ended 2020 QTR 4 lower at $71.20 & $76.95 and even lower for its latest data set for 2021 QTR 1 $70.49 & $74.09. (*PRICES DO NOT INCLUDE OVERHEAD AND PROFIT)
BITUMEN RED FLAGS & INDICATORS
Whats alarming about the data is that our analysis shows the cost of Bitumen rapidly gaining and following the track of the consumer price index and non seasonal adjusted Producer Price Index during offline season. The Producer Price Index for Asphalt finished the 2020 season at 205.4 and has been on a steep incline since with signs pointing to a rocky road ahead.
The price of Bitumen contracts is at $2932 today and up 23.09% for 2021 so far. Pre-pandemic Bitumen finished the 2019 season at $3432. This season one data model we have created shows $4000. The trouble and high risk we see is other materials and fuels are adding significant overhead increases and current economists are forecasting Bitumen to trade down to 2087 within 12 months.
The amount of infrastructure backlog through out the country that we need at all costs and the storm of other events currently happening and on the possible horizon looks as if we will see additional items grow in demand and cost; Hot Mix Asphalt, Off & On Road Diesel and other petroleum based construction related material/items like rigid insulation, freight, cargo ships, operating costs for dump trucks and equipment. An extra dollar or two a gallon for operating heavy equipment and trucks on a construction site make thousands and thousands of dollar differences.
As spring approaches, and we will be watching closely, we will see if demand and inflation come together to bring HMA up possibly 53% depending on geographical location for contractors since their last asphalt purchase. Our primary risk drivers indicate being “open for season” prices to cover average losses on existing contracts that are already locked in and or with out force majeure clauses. High demand and port delays coupled with delays of raw materials, Extreme volatility on price holds and forward pricing. This then will trickle down to general contractor and tradesmen contracts and bids. In Bridgeport, Connecticut, O&G Industries Plant, end of 2020 price for Binder Asphalt Mix was $82.53 while Top Coat demanded $88.70
CONCLUSION ON REPORT
If there is a data gap due to this missing data in the index tracking they are following we could see this volatility come to light over the next few weeks and months as billions of dollars worth of construction and infrastructure projects come back online along with the asphalt plants, trucking, and surcharge market rates are released.
Sticker shock from bids received through the season are going to have procurement professionals and clerks working overtime and or possibly canceling projects as sticker shock is sure to increase the anticipated budgets of request for proposals and projects going out to bid.
Although moves to more environmentally sustainable building materials and less emissions are a priority here in the Americas the demand will still be high and desperately needed in the upcoming quarters.