K C Roofing Company

In the last year the price per bundle for asphalt shingles nearly doubled in price.  Earlier in the year this made sense since transportation and raw material costs soared due to the run away petroleum cost increases - but what gives now?  Oil prices have collapsed and since asphalt is primarily a by-product of oil refining it seems like the prices should be dropping as well --- right?

Well, as it turns out the cost drivers for asphalt shingles are a little more complex than the price per barrel of light sweet crude.

Oil prices do and did have a significant impact on the cost of shingles particularly earlier this year but there are four other factors that are contributing to keeping the cost high at present - they are:

1. Refinery Efficiency:  Because it has become nearly impossible to build new refineries in the US due to the regulatory environment, the oil companies have had to maximize production of existing facilities through innovations in refining efficiency. They have succeeded in large part but the ironic development is a growing shortage of ashphalt.  Asphalt is basically the "gunk" left over after refinning and as the oil companies have learned to make more oil and less "gunk" from a barrel of crude the ironic result has been less asphalt and as a result higher prices.
2. Manufacturing Capacity:  The major shingle manufacturers have not been hard up for business.  They have all been at full capacity for many months now due to the hurricane storm damage earlier this year.  Consequently, there has been no real incentive for them to reduce the price of asphalt shingles.
3. Manufacturer Consolidation:  The shingle manufacturers have been buying each other up in the last few years so there are fewer of them.  As with any aquisition process the company becomes consumed with sorting out and integrating all of the manufacturing facilities.  Because of this and the debt load that the surviving companies have taken on there has not been significant investment in new expanded capacity.  In addition, with the economy in recession and the credit market fouled up there is very little incentive to bring more capacity on line.  As a result, if we have another destructive storm season in 2009 it is likely that the shingle manufacturers will be close to full capacity again.
   
4. Obama and The Futures Market:  Finally, the last and probably most significant cost driver at the moment is the anticipated Obama stimulus package.  With the new administration's plans to spend nearly $1 trillion dollars on US infrastructure next year, the futures market is predicting a continued shortage of asphalt.  In fact, many States and Municipalites are redesigning road projects to use concrete instead of asphalt as a result.

Does this mean that there will be future price increases?  In this environment anything is possible but I don't think we will see this 2009.  It is even possible that we may see the price come down a bit on shingles in the coming months.  As the storm business winds down along the gulf coast the manufacturers should see a good size drop in orders as the demand every place but the gulf coast is down significantly.

The big unkown at this time is what will the 2009 storm season bring.  If it is a mild season then prices should drop - if not then probably more of the same.