1. Energy Costs and AsphaltBy
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

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

8. 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

9. 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

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

11. 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

12. All asphalt prices are from the Argus Asphalt Report

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

27. 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

28. 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

29. Asphalt Pricing Methods Retail pricing
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

30. Asphalt pricing methods Wholesale Prices
Current
Spot deals
Term deals
Winter-fill deals
Future
Spot deals
Term deals
Longer term deals are risky
Winter-fill deals
Fewer sources

31. 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

32. The End