Distributor's Corner September 2008:
Shingle prices go through the roof
This year has seen price increases in practically every category of roofing products and accessories. Most notable is the unprecedented increase in asphalt and asphalt-based shingles. With asphalt prices having nearly doubled this year, there is an approximately 30% plus increase in asphalt shingles. With demand high, it seems we are in a perfect storm of sorts, where several factors are contributing to not only price escalation, but also spot shortages and increased lead times nationwide.
Asphalt shortages and extensive price increases. We are in a classic supply/demand scenario. Currently there are severe asphalt supply restrictions in the United States. Most asphalt is made from crude oil that comes to the US by pipelines from Canada. It is a heavier crude oil that what is coming from the Middle East and produces much more asphalt as a by-product. These pipelines are undergoing maintenance which has cut their output capability. A second factor is the high price of crude oil itself. Asphalt is a by-product of producing refined crude oil. Refiners in the past would sell off this by-product for whatever they could get for it. With crude oil at record high prices, a secondary process using a machine called a Coker has come in play. This Coker allows more gasoline to be squeezed out of a barrel of oil and therefore less (if any) asphalt is left. Under the current prices for crude, it pays more dividends for the refineries to use this process and produce less asphalt. The third factor is seasonal road construction, as road asphalt takes up much of the supply.
Decrease in capacity. One of the results of industry consolidation by shingle manufacturers (most recently Elk/GAF) is the closing of approximately seven shingle manufacturing facilities throughout the nation. This decrease in capacity is reportedly between 10-15%.
Increase in demand due to higher than normal hail and wind damage nationwide. Storms have hit amore metropolitan areas this year than ever before. Don't take it from me, just look at the ads looking for help in the Coffee Shop Classifieds, storm damage is everywhere. With over a million claims reported, storm damage has more than made up for the loss of demand due to the contracting housing market. This increase in demand, along with the decrease in capacity due to plant closing has put the shingle market in a supply/demand imbalance. The balance is being put back into place by raising prices. With these three factors coming together at the same time, distributors have no choice but to pass the price increases on as soon as they hit. Inventory levels are relatively low at most distributors due to extended lead times, thus the price increase cannot be absorbed. The silver lining in this is that high tides raise all boats and we are all in the same boat. If our products and services cost more, but we are able to pass the costs on successfully to the end user (homeowners and builders), it should mean a much needed increase in profitability for our industry as a whole.
Earl Ward is a 28 year veteran of the roofing industry primarily, in distribution and most recently as owner/managing partner of a roofing and siding distribution company in Minneapolis, MN. Mr. Ward is President of NEMEON, Inc.
