Recent media reports suggest there is a current shortage of asphalt cement in Ontario. But DCN columnist Mike O’Connor says the province is not short of asphalt cement. And with the recent normalization in the price of other oil-related products, asphalt cement remains an economically viable commodity for refineries to produce.
Guest Column
Recent media reports suggest there is a current shortage of asphalt cement in Ontario. This is incorrect.
The province is not short of asphalt cement and with the recent normalization in the price of other oil-related products, asphalt cement remains an economically viable commodity for refineries to produce.
To say that the Ontario market is short by 20,000 barrels a day of crude to meet asphalt cement demand is entirely misleading. While the production of asphalt cement in Ontario is less than the demand, the supply of asphalt cement is more than adequate. Ontario asphalt cement suppliers regularly import asphalt cement from nearby refineries, just as asphalt cement suppliers do in most other jurisdictions in North America.
In fact, few jurisdictions in North America can boast of as ample a local supply as we can thanks to Imperial Oil’s Nanticoke refinery, a large part of which is dedicated to the production of asphalt cement and supplies about 60 per cent of the province’s requirement. This past winter Imperial Oil increased both its production capacity and the plant’s reliability to produce asphalt cement.
There are a number of asphalt cement suppliers who supply our market with asphalt cement from suppliers outside the province and are fully capable of ensuring that Ontario road builders have all the asphalt cement they need. Long-term asphalt cement importers and resellers include Canadian Asphalt Industries Inc., Bitumar Inc. and Coco Asphalt Engineering (formerly Lafarge). Another is McAsphalt Industries who will introduce this month its second super barge dedicated to asphalt cement, increasing its marine capacity by about 40 per cent, further ensuring that Ontario will have access to ample supplies of asphalt cement on the world market.
Additionally, an independent barging company has just launched an 8,000 tonne asphalt barge that is on long-term lease with one of the U.S. Midwest refiners for asphalt movements around the Great Lakes, doubling its capacity to serve this market.
There has been a lot of talk recently about refineries investing up to a billion dollars to install “cokers” to convert the asphalt cement portion of their crude source to “more profitable” products such as gasoline and diesel. It appears that the bloom is off the rose for those refineries who have been considering making these large investments. Petro-Canada, along with a number of U.S.- based refineries, has put an indefinite hold on plans to add coking capacity to its Montreal refinery, which has been and remains a consistent supplier of asphalt cement to the eastern Ontario market.
On the price side, as verified by the Ministry of Transportation for Ontario’s AC Price Index, prices have fallen from an unprecedented and unsustainable high of $932 per tonne in August last year to a consistent level of $700 per tonne for the first three months of this construction season. The AC index published by MTO on June 30th effective for asphalt laid in June shows the benchmark price at $668.25 per tonne, continuing the downward trend. Municipal pavement owners and others who have incorporated the MTO AC Index in their 2008 tenders as a qualifier for hot mix asphalt items (as MTO does) are no doubt rejoicing over the rebates they are now receiving for work carried over into 2009.
As with all crude oil-based products, asphalt cement prices can be volatile and will be influenced by a number of factors that have no relationship to the local supply and demand balance. The Ontario Hot Mix Producers Association continues to urge municipalities, private developers, and other large purchasers of hot mix not to suspend the use of the MTO AC Index despite the apparent stability in the current market. Asphalt cement prices remain unpredictable. Pavement owners should continue to qualify their hot mix items. They will benefit by getting more bids for their tenders (and thus increasing the competition for their projects) and they will also benefit if oil prices, which have increased by over 50% from the low earlier this year, once again decline.
Mike O’Connor is chief executive officer of the Ontario Hot Mix Producers Association, a trade group representing the province’s hot mix asphalt producers.
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