1/10/2009

2009 Asphalt Productivity

As I travel around the country and attend meetings with refiners to transportation companies I hear very different messages. I was in a meeting last week that enlightened me to the real potential of another asphalt shortage. Although Q-4 2008 showed a real success in asphalt going long (being made available), at the start of 2009 the market is already starting to trend to short supplies. With refiners not getting their crack spreads and slowing production across the board along with asphalt storage becoming scarce, it is my opinion that asphalt will become high priced for all and possibly unavailable for the spot buyers.

As we all know 2008 was a very volatile year for the asphalt market. Prices from $200/ton to $800+/ton and back down to <$200/ton again?  This cyclical trend has the ability to replay in 2009, due to the availability of storage, transportation and the raw materials. In 2008 a large player within the storage and supply stream went bankrupt. This player is about to come back online with capital horsepower. This opens up an area for increased storage and transportation but I see them wanting to recoup their investments as the market goes short again. Unfortunately this will affect the manufacturers that are already short on liquidity and customer base for their products.  A short storm season is clutching the productivity of roofing manufacturers across the country. This can be seen with the increased down times along with the decreased production schedules.  The paving market had some hope with moneys becoming potentially available from the federal government, yet it looks like the money will be consumed through energy efficiency projects and not DOT improvements.

With the bad news out of the way, what can we do to increase the productivity of our businesses? How can we leverage our position as asphalt manufacturers and users to increase our market share and jumpstart our business?
We can not continue to do business as usual. The mentality and decision making of 2007 & 2008 is already outdated. As manufacturers we need to understand this stepchild to mainstream oil and be able to respond to the market conditions uniformly. Some refiners are still trying to rule their markets with an iron fist, while others are trying to achieve success through relationships and cost cutting tactics.  While both of these tactics and many more have been used successfully throughout the prior years they do not hold good stability for today’s market.  Today we need to focus on five steps:

1. Material approval.
1. Know what your material needs to be and approve sources that fit within that fitness for use.
2. Don’t accept material because it will manufacture a product, just to have claims in failing products.
3. Along with fitness for use comes pricing. Asphalt is now a commodity material and should be priced within our existing indexes. The refiners that want to charge market + deals are here for the short term. Don’t be fooled by their tactics and threats. Usually refiners that price above market are there for the spot buys and should be treated as such. Although the relationship is still a necessity, it needs to be built on fact based business and they should know your strategy. More times than not, these same refiners are short on storage.
2. Material Forecasting
1. How much of each material will we need to be successful throughout the rest of this year. This should be done at the sales and operations level.  This is not the time to over inflate projections or under estimate the market of your products.  Be honest.
3. Business Forecasting
1. At the upper levels of the businesses, we need a good 2-5 year strategic plan.
2. The fluff will be here, but it will also have commitments for future business growth from the decision makers.
4. Building Relationships
1. Building relationships with our suppliers. Have that face time to allow a mutual understanding of where you are and what your plans are. This is a great time to get their commitments of supply while gaining an understanding of their direction.
2. Being a good customer is more than specifying and expecting, but further in listening and achieving results.  Our suppliers are not out to get rid of us, without us they don’t have a business. They want a relationship and a partnership that works long-term.
5. Be Prepared
1. Let you suppliers know your requirements and allow them to commit to their available material.
2. Don’t get upset because they can’t commit to your total volumes, you have options and many other relationships by now.
3. Be accepting of what they can do in this market and appreciate them for their help in achieving your business goals.
4. There are many things that affect asphalt availability. Have your plans in place to respond to market changes.

As the market changes throughout this year, I will be updating this blog. It is my hope that with your input we can all grow our businesses and enjoy the market.

Tony Katzenberger
President Pacific Northwest Consulting Group
PacificNCG.com

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